Your credit score is a major factor when buying a home. It determines your mortgage eligibility, interest rate, and monthly payments. A higher score can save you thousands over the life of a loan, while a lower score may limit your options or increase costs. Here’s a quick breakdown:
- Conventional Loans: Minimum score of 620, though many lenders prefer 660+.
- FHA Loans: Scores as low as 500 with a 10% down payment or 580 with 3.5% down.
- VA Loans: Typically require 580–620, available to veterans and active-duty military.
- USDA Loans: Minimum score of 640 for automated approval; some lenders accept 580.
- Jumbo Loans: High credit scores (700–720+) are needed for larger loans.
A higher credit score not only improves approval chances but also reduces costs. For example, a 620 score on a $350,000 loan could mean paying $157 more per month compared to someone with an 840 score. Over 30 years, that adds up to $56,520 in extra interest.
Improving your credit before applying for a mortgage is key. Focus on paying bills on time, lowering credit card balances, fixing errors on your credit report, and avoiding new credit applications. Even small improvements can lead to better rates and save you money.
Credit Score Requirements and Costs by Mortgage Type
What Credit Score Do You Need To Buy A House In 2025? Loan Programs Credit Requirements Explained
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Credit Score Requirements by Mortgage Type
Once you understand how credit scores affect your mortgage costs, the next step is to look at the credit score requirements for different loan types. The type of mortgage you choose determines the minimum credit score you’ll need. Here’s a breakdown to help you figure out which option works best for your situation.
Conventional Loans
Conventional loans generally require a credit score of at least 620. However, some lenders might set their bar higher, asking for a score of 660 or more, depending on their policies. These loans are often a good fit for borrowers with strong credit, offering the potential for lower long-term costs.
FHA Loans
FHA loans stand out for their lower entry requirements. You can qualify with a credit score as low as 500 if you’re able to make a 10% down payment, or 580 if you can manage a 3.5% down payment. The tradeoff? FHA loans come with extra costs, including an upfront mortgage insurance premium of 1.75% and an annual fee of 0.55%. If your down payment is less than 10%, that annual insurance sticks around for the life of the loan.
VA Loans
VA loans, designed for veterans and active-duty service members, offer flexible credit requirements. Most lenders look for scores between 580 and 620. These loans have several perks, including no down payment, no monthly mortgage insurance, and interest rates that are typically 0.25% to 0.5% lower than those on conventional loans.
USDA Loans
USDA loans usually require a credit score of 640 for automated approval, but some lenders may accept scores as low as 580 through manual underwriting. These loans are targeted at eligible rural and suburban properties and don’t require a down payment. Plus, their annual fee of 0.35% is lower than the mortgage insurance costs associated with FHA loans, making them a cost-effective choice if your income and property location meet the program’s criteria.
| Loan Type | Min. Credit Score | Down Payment | Best For |
|---|---|---|---|
| Conventional | 620 | 3%–20% | Borrowers with strong credit |
| FHA | 500–580 | 3.5%–10% | Lower credit scores, first-time buyers |
| VA | 580–620 (typical) | 0% | Veterans and active-duty military |
| USDA | 640 (typical) | 0% | Rural and suburban properties |
| Jumbo | 700–720+ | 10%–20% | High-priced homes above conforming limits |
How Your Credit Score Affects Interest Rates and Monthly Payments
Your credit score doesn’t just determine whether you qualify for a mortgage – it directly impacts how much that loan will cost you. Lenders use your score to measure risk: higher scores signal a lower likelihood of default, earning you better rates. Lower scores, on the other hand, suggest higher risk, which translates into steeper interest rates and higher costs over the life of the loan. Let’s break down how this plays out in real numbers.
What Different Credit Scores Cost You
Take a $350,000 conventional mortgage as an example. With an 840 credit score, you might lock in a 7.07% interest rate, resulting in a monthly payment of $1,876. But with a 620 score, the rate could jump to 7.89%, increasing your monthly payment to $2,033 – an extra $157 per month. Over the 30-year term, that adds up to about $56,520 in additional interest costs.
Credit scores also affect Private Mortgage Insurance (PMI) costs for conventional loans. Borrowers with excellent scores might pay around $75 per month for PMI, while those with a 620 score could pay as much as $260 per month. Combined with higher interest rates, this could add over $250 to your monthly housing costs. Over three decades, the total additional cost from higher interest and PMI could range from $70,000 to $90,000.
These numbers make it clear: a strong credit score isn’t just about approval – it’s about saving tens of thousands of dollars over the life of your loan.
Why Low Scores Mean Higher Costs or Rejection
The financial impact of a low credit score doesn’t stop at higher costs; it can also shrink your home-buying options. When your score falls below certain thresholds, lenders respond by raising interest rates, demanding larger down payments, or denying your application altogether. For conventional mortgages, a score below 620 often results in automatic rejection, steering borrowers toward government-backed loans like FHA or VA options.
Additionally, many lenders enforce stricter internal policies, known as "overlays", which set credit score requirements 20 to 40 points higher than program minimums. For instance, while an FHA loan may officially allow scores as low as 580, some lenders might require at least 620. This makes a low score even more limiting, narrowing your choices and significantly increasing your costs.
How to Improve Your Credit Score Before Applying
Boosting your credit score before applying for a mortgage can save you a ton of money and open up better loan options. The best part? Some strategies can deliver results in just 30 to 60 days, while others set you up for long-term success. Here’s how you can get started.
Pay All Bills on Time
Your payment history is the biggest factor in your FICO score, making up 35% of it. Even a single 30-day late payment can knock your score down by 60–100 points, and it could take 12 to 24 months to recover. To avoid this, set up automatic payments. Daryn Gardner from Jax Federal Credit Union suggests:
"Try setting up automatic payments through your lender or financial institution. And always pay on time the minimum payment stated on your bill".
Lower Your Credit Card Balances
Credit utilization, or how much of your credit limit you’re using, accounts for 30% of your FICO score. Paying down high balances can boost your score by 30 to 50 points in as little as 30 to 60 days. Aim to keep your balances below 30% of your credit limit, though staying under 10% is even better. Gardner also highlights this approach:
"The most effective way to improve your credit score is to pay down your revolving debt".
If you can’t pay off balances immediately, consider asking for a credit limit increase – but resist the urge to spend more.
Fix Errors on Your Credit Reports
Errors on your credit report can drag your score down. Correcting these mistakes can add 20 to 100+ points in just 30 days. Start by getting your free credit reports at AnnualCreditReport.com. Look for inaccuracies like incorrect balances, accounts you don’t recognize, or payments wrongly marked as late. Dispute errors in writing, include supporting documents (like bank statements or canceled checks), and send them via certified mail. Credit bureaus must investigate within 30 days, or up to 45 days if you provide additional information. If you spot accounts you didn’t open, report identity theft at IdentityTheft.gov.
Stop Applying for New Credit
Once you’ve cleaned up your credit report, keep the momentum going by avoiding new credit applications. Each new application triggers a hard inquiry, which can slightly lower your score. Plus, opening new accounts right before applying for a mortgage can make lenders nervous. Skip the car loans, credit cards, and store financing for at least six months before house hunting. Lenders will keep an eye on your credit, and new accounts could hurt your chances of approval.
Keep Your Oldest Credit Accounts Active
The length of your credit history makes up 15% of your FICO score. Closing old credit cards can reduce your available credit and shorten your credit history, both of which can hurt your score. Instead, keep those older accounts open, even if you’re not actively using them. This helps maintain your credit history and improves your utilization ratio – a win-win without costing you a dime.
| Action | Potential Point Gain | Estimated Timeframe |
|---|---|---|
| Disputing Errors | 20–100+ points | 30 days |
| Paying Down High Utilization | 30–50 points | 30–60 days |
| Becoming Authorized User | 10–30 points | 30–60 days |
| Consistent On-Time Payments | Steady growth | 6–12+ months |
Conclusion
Your credit score plays a crucial role in shaping your mortgage options and setting the pace for your home-buying journey. By improving your credit now, you can secure more favorable mortgage terms later. Loan types like FHA, VA, Conventional, and USDA typically require minimum scores between 500 and 640, though many lenders prefer scores that are 20–40 points above these thresholds.
Consider this: a borrower with a 620 credit score might pay over $200 more per month compared to someone with a 760 score. Over 30 years, that adds up to more than $70,000 – money that could be used to bolster your financial future.
The good news? You have the power to improve your credit. Even small steps can lead to big savings. For example, disputing errors on your credit report could boost your score by 20 to 100+ points in just 30 days, while paying down credit card balances might add 30 to 50 points within 60 days. If your score is around 500, reaching 620 often takes 6–12 months of consistent effort – but the savings make it worthwhile.
Start working on your credit at least 6–12 months before buying a home. This gives you time to fix errors, reduce debt, and establish a solid payment history. The earlier you start, the better your loan terms will be – and the more home-buying options you’ll have.
FAQs
Which credit score do lenders actually use for a mortgage?
Lenders often turn to FICO scores to assess mortgage applications. Typically, a credit score of at least 620 is needed for most loans. However, the exact requirement can differ based on the type of loan and the lender’s policies. For instance, specific mortgages like FHA loans or VA loans might come with their own unique credit score criteria.
Can I get approved with a low score if I put more money down?
Yes, making a larger down payment can improve your chances of getting approved even with a lower credit score. This is because it reduces the lender’s risk. However, keep in mind that most mortgage programs still have minimum credit score requirements that you’ll need to meet, no matter how much you put down.
How long before I apply should I start improving my credit?
Improving your credit score should ideally begin 3 to 6 months before applying for a mortgage. This window allows enough time for positive changes – like paying bills on time, lowering your debt, and handling credit responsibly – to reflect on your score. Starting even earlier, around 6 months, can give you a better chance of meeting credit score requirements and qualifying for more favorable loan terms.
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Karla Moss is a CPA and former startup Controller who spent 15 years managing finance at the executive level — including inside a company that grew to unicorn status. She founded Karla & Co. to bring real-world financial clarity to everyday money decisions. She’s based in Phoenix, AZ and writes from personal experience as much as professional expertise.