How Does Your Credit Score Impact Your Mortgage?

Dori Wittrig February 2, 2021

When it comes to buying a home, your credit score does three main things: it determines whether you are eligible for a home loan, what kind of loan you can get, and what interest rate you will pay for that loan.

What Is a Credit Score?

Your credit score is a number that depicts your creditworthiness. The higher the score, the better. While multiple factors determine that number, some of those factors include the number of open accounts, total debt level, and repayment history. Lenders want to know your credit score to evaluate the probability that you will repay your loans promptly.
Your credit score will fall between 300, the lowest, and 850, the highest.

What Score Do You Need?

You do not need a perfect 850 to get the best mortgage rates, but there are some score requirements if you need to finance a home.
To qualify for the best interest rates, you should aim to have a credit score of 760 or higher. But different types of loans and different lenders have varying requirements.
The following requirements use estimates from FICO, the most popular credit reporting agency.

Conventional Loan – Minimum Score of 620

These loans are not insured by a government agency, but they follow standards set by government-sponsored mortgage companies (Fannie Mae and Freddie Mac). Many homebuyers find these loans to be more affordable. Down payment requirements will vary.

Jumbo Loan– Minimum Score of 680

A jumbo loan exceeds the Federal Housing Finance Agency’s maximum loan amount limits and is not insured by the government. This means that lenders take on greater risk when granting them if you default on your payments. As a result, a higher credit score is required. Down payment requirements vary.

FHA Loan– Minimum Score Is 500 (with 10% Down) or 580 (with 3.5% Down)

These loans are insured by the Federal Housing Administration. They are a great option for borrowers who have lower credit scores and less to contribute toward a down payment. If you have a higher credit score, a smaller down payment is required. However, if your down payment is less than 20%, lenders are likely to require primary mortgage insurance (PMI) to reduce their risk if you default on your payments.

VA Loan – No Official Credit Score Requirement

A VA (Veteran Affairs) loan is created for eligible members of the military and their spouses. It is insured by the U.S. Department of Veteran Affairs. It does not require a down payment, but most lenders want to see a minimum credit score of 620.

USDA Loan – No Official Credit Score Requirement

These loans were designed for low- to moderate-income home buyers. They are insured by the U.S. Department of Agriculture and do not require a down payment. Although there is no official credit score requirement, most lenders will require a score of 640 or higher.
Before you decide to buy a home, examine your credit score, and get your free annual credit report at Give yourself time to address your credit issues before you apply for a mortgage. Click here to use a Loan Comparison Calculator to help you see how much a loan costs at varying interest rates.
Here are some quick tips to revive your credit score and improve your loan options:
  • Check your credit report and correct any errors.
  • Pay down credit card balances to below 30% of your credit limit.
  • Pay all your bills on time.
  • Do not close older credit lines after paying them off.
  • Do not open any new lines of credit or take out large loans.
You will not improve your credit score overnight, but you can raise it over time to position yourself for the best mortgage rate possible. Having a higher credit score can make a significant difference in the amount of money you pay through a loan. Borrowers with high scores can save thousands of dollars in interest payments.

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