What Credit Score Do You Need to Buy a House?

While your credit score is certainly not the only factor considered by mortgage lenders, it nevertheless plays an important role in determining how much you will pay in interest. A credit rating of at least 660 will qualify you for a decent mortgage interest rate, though other factors such as the amount of savings you have and your income level may help boost your appeal to lenders. There are programs for those with credit scores as low as 500.


Preparing your financial and income information will be helpful in determining your capacity to afford a new mortgage. It will also put you in a better position to negotiate with a lender. Documents you should prepare include your credit report; most recent pay stubs; bank statements; tax returns and W-2s; a financial worksheet summarizing all your monthly expenses such as utility bills, car payments, insurance and rent; as well as a summary of all your assets and liabilities.

Mortgage Types

There are primarily two types of mortgages: fixed rate and adjustable rate. Fixed-rate loans include the conventional 30-year mortgage, which offers one fixed interest rate for the entire life of the loan. The advantage of the fixed-rate loan is knowing, with relative certainty, what your next monthly payment is going to be, allowing you to budget accordingly for the long-term. An adjustable-rate mortgage has an interest rate pegged to an index such as the one-year Treasury or LIBOR. For example, if the current one-year Treasury rate is 3 percent and the lender’s margin is 0.5 percent, the loan's interest rate would be 3.5 percent. The interest rate adjusts periodically, meaning that mortgage payments can fluctuate up or down depending on the prevailing interest rate environment. Adjustable-rate mortgages offer the advantage of lower monthly payments when interest rates are low. However, it will be difficult to plan ahead, and the adjustable rate can make the loan unaffordable in times of high interest rates.

Factors of Your Credit Score

Credit scores range from 300 to 800, and are affected by your payment history, outstanding debt balances, new credit lines opened, length of your credit history and types of credit used. According to the Fair Isaac Corporation, the calculation of your credit score is heavily weighted--about 65 percent--against your payment history and outstanding debts owed. This implies that it is important to keep all your debt payments current and to maintain a low balance-to-credit-limit ratio.

Credit Score Effects on Mortgage Rates

Your ability to qualify for the best mortgage rates available will be highly dependent on your credit score. According to a survey done by Bankrate.com, you must have a credit score of at least 760 to qualify for the lowest rate available. If your credit score falls within the 660 to 759 range, you can still obtain attractive interest rates that are just a few basis points, or 1/100 of a percent, higher. If your score is below 660, you will see a sharp climb in interest rates; below 580, the rate increase is at least four percentage points.

The FHA Loan

Mortgage loans from the Federal Housing Administration are insured by the federal government and administered by participating lenders. The underwriting guidelines for an FHA loan are less stringent than those used by conventional mortgage lenders who follow Fannie Mae and Freddie Mac standards. Given this fact, if you have a bankruptcy or foreclosure in your credit history, you may still be able to qualify for an FHA loan. Another advantage of the FHA loan program is the 3.5 percent down payment. However, this only applies if your credit score is at least 580. A lower score between 500 and 580 requires a down payment of at least 10 percent. Yet, monies used for the down payment can be borrowed funds, gifts or grants provided by relatives, non-profit or charity organizations.