Credit Score Needed to Buy a House in 2015
Reader question: "I've heard that I need a high credit score to buy a house these days, because lenders are getting really picky with their loan guidelines. Is this true? And if so, what kind of score is needed to get a mortgage loan today?"
This is one of the most common questions we receive from our readers. In fact, it accounts for more emails than any other topic. So you're not alone in wondering about this. It's clearly a hot topic among home buyers. Unfortunately, it's also a topic that generates a lot of misinformation and confusion. In this article, we will attempt to set the record straight.
Mortgage Approval vs. Getting the Best Rate
Let's start by splitting this question into two pieces. There are actually two separate questions we need to address, and they go hand in hand:
- What score do I need to get approved for a mortgage loan in 2015?
- What credit score is needed to get the best interest rates on a mortgage?
If you asked me what credit score you needed to buy a house back in 2005, I'd say it didn't really matter. Back then, you didn't need much more than a job and a Social Security Number to get a loan. Those were the days of housing bubbles and "easy credit." But things have changed significantly since then. Mortgage lenders today are putting a lot more emphasis on the borrower's credit score (among other things).
Here's what you need to know:
Score Requirements in a Nutshell
If you want to use a conventional mortgage loan to buy a house, you will probably need a credit score of 620 or higher. In 2015, we've been seeing some lenders set the bar even higher, at 640. When using a government-backed loan (such as an FHA or VA loan), you might get approved with a score below that range. For instance, we surveyed lenders about their minimum score requirements for FHA loans, and most required a 600 or higher on the FICO scale.
Ask 20 different experts what score you need when buying a house, and you'll get 20 different responses. When the advice overlaps, you're getting close to the truth. And here's the good news. We've already done the research for you...
Experts: Score Needed When Buying a House
There's nothing better than having a broad range of input from a diverse group of experts. In other words, several brains are better than one. So we have compiled this collection of credit insight from some of the smartest minds in the financial world.
Note: This is an ongoing project. We have set up Google alerts for phrases such as credit score needed to buy a house. Whenever a new article or news story is published online that relates to this topic, we get an email notification. Then we add the comment to the page below. So you'll always have the most recent information available. The most recent entries are at the top.
In August 2013, the Federal Deposit Insurance Corporation (FDIC) published a proposal for the long-awaited qualified residential mortgage (QRM) rule. The report included some interesting statistics regarding consumer credit scores. Between 2007 and 2012, very few mortgages were given to borrowers with scores below 620. In their words, loan originations in this range were "virtually nonexistent." So it seems borrowers may need a credit score of at least 620 to buy a home with financing from a lender. Borrowers with larger down payments may not encounter this obstacle.
(Source: FDIC document "Credit Risk Retention," 8/28/13)
Lenders strive to generate "prime mortgages" as much as possible, because these loans are less risky and easier to sell into the secondary market. But what constitutes a prime loan these days? According to Peter J. Wallison of the American Enterprise Institute, lenders use a variety of underwriting criteria to ensure the prime quality of loan. These include "a borrower's credit score above 660 in the FICO system." That doesn't mean all borrowers will need a score of 660 or higher to buy a house with a mortgage. But it does give us some insight into where lenders are drawing the line.
(Source: Peter J. Wallison, American Enterprise Institute, 3/4/13)
In January 2012, the Home Buying Institute began to survey mortgage lenders in the United States regarding their qualification criteria. One of the questions asked had to do with credit. Lenders were asked what score a borrower might need to get approved for an FHA loan and a conventional home loan. Most lenders required a 600 or above for FHA, and a 640 or above for conventional. Some of the lenders surveyed said they would work with borrowers below these levels, if they had other "offsetting factors" such as a large down payment and/or very little debt.
(Source: Brandon Cornett, Home Buying Institute, 2/4/12)
In October 2011, Mark Zandi from Moody's Analytics did an interview on Bloomberg Radio. He was talking about the housing market, and how mortgage lenders were still being tight with credit. He said borrowers would likely need a FICO score of 750 or higher to get approved for a home loan. (This has been disputed.) He went on to point out that the median FICO score in the United States is 700. This means that more than half of all consumers would not qualify for a loan, if Mr. Zandi's statement is accurate.
(Source: Mark Zandi, Economist, Moody's Analytics, 10/14/11)
In June 2011, real estate writer Alison Rogers published a Time magazine article entitled, "Credit Scores: Is 750 the New 680?" She pointed out that nearly half of all mortgages in the first quarter of 2011 went to borrowers with credit scores above 750. In 2008, the "over 750" group only accounted for 29 percent of home loans. "It's not that individual credit scores are going up," said Rogers, "but rather that lending has tightened."
(Source: Alison Rogers, Author, Diary of a Real Estate Rookie, 6/30/11)
Carolyn Jordan is a Senior Vice President at Neighborhood Credit Union. In April, she did an interview with Sam Baker of KERA (an NPR affiliate in Texas). She said a credit score of 720 or higher will help you qualify for the best rates. A score between 600 and 700 will get you a less favorable rate, but there are still chances for approval. She added that "anything less than 600 is not a good thing."
(Source: Carolyn Jordan, SVP at Neighborhood Credit Union, 4/25/11)
This entry trumps part of the entry below, as far as Wells Fargo is concerned. In February of 2011, the New York Times and American Banker magazine both reported that Wells Fargo was lowering its credit-score requirement for FHA home loans. According to those reports, they lowered the bar to 500. This means tens of thousands of previously unqualified borrowers would have the credit score needed to buy a house, through this particular lender at least.
(Source: Brandon Cornett, Home Buying Institute, 2/26/11)
Wells Fargo and Bank of America are the two biggest mortgage lenders in the United States, in that order. A Bloomberg news story pointed out that these two lenders, among others, were raising the minimum credit score for FHA loans they are willing to fund from 620 to 640. This means you would need a score of 640 or higher to buy a home with an FHA loan, if you used one of these lenders. [See Wells Fargo update above.]
(Source: John Gittelsohn and Jody Shenn, Bloomberg, 11/17/10)
John Ulzheimer is the head of consumer education with Credit.com. When speaking to the San Francisco Chronicle, he explained the type of score you would need to (A) get approved for a mortgage and (B) get the best rates. A score in the 600s might get you approved, he said, but you certainly won't get the best deal. With a credit score between 700 and 750, you'd have a much easier time getting approved for a mortgage loan. But you still might not get the lender's best rate. They generally reserve their absolute lowest rates for borrowers with scores above 750.
(Source: San Francisco Chronicle, 9/9/10)
Guy Cecala is the publisher of Inside Mortgage Finance, a journal for people in the lending industry. In an interview with U.S. News and World Report, he said that borrowers would likely need a score of 730 or higher to qualify for the best interest rates available. That doesn't mean you can't get approved with a score below 730 -- you can. You just wouldn't get the lowest rates, according to Cecala.
(Source: USNews.com, 12/3/09)
Your Credit Score is Not the Only Factor
Your credit score is one of several criteria a mortgage lender will consider. They will also look at the amount of debt you have. They will compare your monthly debt expenditures to your gross monthly income, to come up with a debt-to-income ratio or DTI. This is another item that can make or break your chances of getting a loan. The down payment is also important.
So yes, you will need a certain credit score to buy a house. But these numbers are not written in stone. The lender might make an exception with your score if you "shine" in other areas. It's the complete picture that matters -- not just the three-digit number.
Disclaimer: This article contains insight and commentary from a variety of people. These comments do not necessarily reflect the views of the editors of this website. You should not take any of this information as the final word on the subject. There is only one way to find out for sure if you can qualify for a mortgage loan, and that's to speak to a lender. They can tell you what credit score is needed when buying a house, under their particular guidelines. This information is provided for educational purposes online.