Question mark icon with text, credit score for homebuying.

Your credit score may just be three digits, but it’s significant in a lender’s equation for determining whether you’re approved for a mortgage loan. For first-time homebuyers and repeat buyers alike, you might not know what credit score you need to buy a home — or realize that your score can affect your loan options. Here’s how credit scores factor into the homebuying process.

How important is credit when buying a home?

Your Fair Isaac Corporation (FICO) credit score is the primary metric by which most lenders measure your ability to buy a home and pay back the debt that funds the purchase. It not only determines if you can qualify for a loan in the first place, but it can also impact your mortgage terms.

What are the minimum credit scores needed for each type of loan?

As a homebuyer (or a homeowner who is looking to refinance their mortgage), you have several mortgage choices to choose from — and none of them require flawless credit to qualify.

For most loan types, a credit score of at least 620 is required. But you may be able to qualify for a mortgage with a score in the 500s. Higher is better, though. Most banks and lenders, including Ally, reward a higher score with more mortgage options, loan durations, and lower interest rates. Borrowers with a credit score of 740 or more typically land the best interest rates.

Type of Loan Minimum FICO Score
Conventional 620
Jumbo Above 700
FHA loan requiring 3.5% down payment 580
FHA loan requiring 10% down payment 500
VA loan No minimum score. However, most lenders usually will require that your score be at least 620
HomeReady 620

Which home loan is right for you? Explore your options.

What else do mortgage lenders consider?

Your credit score doesn’t tell lenders everything about your personal financial situation, so many also look at your credit report (which includes your credit history) to see how you’ve managed debt payments in the past. Specifically, they will take a close look for:

  • Delinquent accounts and accounts in collections
  • Bankruptcies and foreclosures
  • Number of recent credit applications
  • Outstanding debts

Your income and expenses also matter greatly, since these factors ultimately determine whether or not you can pay all your bills each month. So lenders also review your debt-to-income ratio (DTI) — they like to see a DTI of 43% or lower — and your liquid assets to determine if you have enough cash reserves to cover your regular expenses should your financial situation change unexpectedly.

Lastly, mortgage lenders also analyze how long you plan to borrow money and the size of your down payment. A larger down payment might land you a better interest rate. That’s because, the lower your loan amount, the less risky it is for them. The length of the loan also plays a role, too, since lenders generally assume your ability to pay is less likely to change over a shorter loan term. So, with a shorter loan length, lenders might offer you other favorable borrowing terms.

Can I get a home loan with poor credit?

Getting a mortgage with a lower credit score might be a bit challenging — but it’s possible. With a credit score between 500 and 600, you can qualify for a Federal Housing Administration (FHA) loan. Depending on your credit score, you’ll need to put down a minimum of 3.5% or 10%.

Note: If you have poor credit, you may only qualify for a smaller mortgage. Meaning you might need to make a larger down payment, buy a more affordable house, and/or  increase your score first.

How can I boost my credit score for a mortgage?

If your credit score is limiting your mortgage options, you have several ways to improve it:

  1. Pay bills on time.
  2. Make payments in between statements to pay down outstanding balances.
  3. Ask for a higher credit limit on your credit card to reduce your credit utilization.
  4. Dispute any credit report errors that may be pulling down your score.
  5. Become an authorized user on an account of a friend or relative with a long history of responsible credit card use and a high credit limit.
  6. Keep credit cards open even if you don’t use them to boost your credit utilization.
  7. If you only have one type of credit (like credit cards or a car loan), introduce more types to demonstrate you’re financially responsible with multiple loans.

Your credit score counts

When buying or refinancing a home, lenders use your credit score as a way to assess your financial health.  A score of 620 is required to be approved for a conventional loan. And the higher your score is, the more favorable loan your terms could be. But even if your credit score is less than ideal, you could still have some mortgage loan options to choose from.

Ally Home simplifies the homebuying process.

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