myFICO: What FICO Score Do You Need to Buy a Home?

Buying a home is not only a major life milestone but also a significant commitment. As such, mortgage lenders typically have stricter guidelines than other loan types when you apply.

The minimum FICO® Score needed to buy a home can vary depending on which type of mortgage loan you're applying for, but the higher your scores, the better your chances will be to get approved with favorable terms.

Also, while your FICO® Scores are an important factor in the underwriting process, lenders consider several other elements as well. Here's what you need to know to make sure you're credit-ready to buy a home, from myFICO.

For more loan and credit education, visit myFICO’s blog at https://www.myfico.com/credit-education/blog

Minimum FICO® Score Requirements for Types of Mortgage Loans

There are many different types of mortgage loans from which you can choose, each of which has features that may provide a better fit for you than the others. Here's what FICO® Score you'll typically need to be eligible for each option:

• Conventional loans: These loans are the most common type of mortgage loan and require a FICO® Score of 620 or higher.
  
  
  
  
• Jumbo loans: These loans are considered “non-conforming” loans because they exceed the Federal Housing Finance Agency's loan limit for conventional loans. You generally need a FICO® Score of 680 or higher to qualify, but some lenders may set the minimum at 700.
  
  
  
  
• FHA loans: These loans are backed by the Federal Housing Administration and require a FICO® Score of 500 or greater if you can put down at least 10% on the purchase. If you're going with the standard 3.5% down payment, the minimum FICO Score is 580. Most homebuyers can apply for an FHA loan.
  
  
  
  
• VA loans: There's no minimum FICO® Score requirement set by the U.S. Department of Veterans Affairs. In most cases, lenders will ask for a FICO Score of 620 or higher, but some may go as low as 580. You need to be an eligible member of the military community to qualify for this loan.
  
  
  
  
• USDA loans: As with VA loans, there is no minimum FICO® Score for loans backed by the U.S. Department of Agriculture. Most lenders require a FICO Score of at least 640, but some may be willing to go lower than that. USDA loans are designed for homebuyers who are planning to buy property in an eligible rural area.

As you prepare for the homebuying process, carefully consider each type of mortgage loan to determine which one is the right fit for you and your needs.

Other Factors Lenders Consider in Addition to Your FICO® Scores

While your FICO® Scores are a crucial piece of the underwriting process, it's only one of them. Here are some other items mortgage lenders will look at when you apply for a loan:

• Debt-to-income ratio: This metric refers to the percentage of your gross monthly income that goes toward monthly debt obligations, including your proposed housing costs. Most lenders allow a maximum debt-to-income ratio of 43%, but some may go as high as 50%.
  
  
  
  
• Employment: In addition to your income, lenders will also look at how stable your employment situation is. If you've recently switched jobs or you're self-employed, you may need to clear some additional criteria to get approved.
  
  
  
  
• Recent credit: It's generally best to avoid opening new credit accounts in the six to 12 months leading up to a mortgage application. New credit cards and loans may increase your debt-to-income ratio, which can make it harder to get approved.
  
  
  
  
• Down payment: Down payment requirements can vary, with some types of mortgage loans not requiring one at all. That said, the more you can put down, the better your approval odds will be. It can also help you secure a lower interest rate and avoid mortgage insurance premiums.
  
  
  
  
• Liquid reserves: It's generally a good idea to have more cash in reserve than you plan to put toward a down payment and closing costs. It indicates financial soundness and can make approval more likely.
  
  
  
  
• The property: Lenders typically have guidelines to ensure that the home you're buying is a good investment. This process involves an appraisal and an inspection to determine its value and condition.

These factors are crucial, so make sure you do more than just focus on your credit scores as you prepare for the homebuying process.

The Bottom Line

Before you apply for a mortgage loan, it's a good idea to check your FICO® Scores and credit reports to assess your overall credit health. If your score doesn't meet the minimum requirements for the type of mortgage loan you're eyeing, or it's lower than you'd like, take meaningful steps to improve your FICO Scores over time.

Actions may include paying down credit card debt, paying down loan balances, correcting errors on your credit reports and more. Focus on the specific areas of your credit reports that are impacting your FICO® Scores and monitor your credit regularly to track your progress.

Additionally, look at the other factors that lenders consider and evaluate how you'll present yourself when you apply. Consider taking other steps to rectify any issues you see or to solidify your creditworthiness.

About myFICO

myFICO makes it easy to understand your credit with FICO^® Scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer division of FICO– get your FICO Scores from the people that make the FICO Scores. For more information, visit https://www.myfico.com/credit-education

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