To get the best interest rate on a home loan, your credit scores should average above 740. However, the minimum credit score needed for a home mortgage through an FHA Loan is 580. No matter your credit, you can likely qualify for a home — the difference will be in the interest rate you qualify for.

An FHA loan is by far the best option available for low-score lenders. Plus, with one of these loans, you only need a 3.5% down payment. I could buy a nice house right now if I wanted to. If your score is below 580 and you still want to buy a house, you’re not necessarily out of luck. Visit the Credit Requirements for an FHA loan page to view the exceptions.

How is your score determined? Lending authorities use a variety of formulas. In fact, there are three variants of a credit score:

  • Experian/Fair Isaac Risk Model
  • TransUnion FICO Risk Score 04
  • Equifax Beacon 5.0

A lender will usually run all three of these scores and will likely use an average of all three.

The Ideal Score

According to most authorities, you need a score of 740 or above to qualify for the best rates. One reputable source said 760, but the majority of our sources said 740. Keep in mind that an 850 credit score (the best a person can get) will likely get you the same interest rate as someone with a 740.

You may be able to get your interest rate decreased in other ways if you don’t have an excellent score. For instance, if you offer a large down payment, you may get a break on the interest rate.

To determine if you have the ideal credit score for buying a home, make sure the average of your three scores is at least 740. The difficult way to do this is to have a lender run an analysis for you (just make sure a hard credit pull isn’t done — that will hurt your score by between five and 10 points). Or you can simply use a few online tools like Mint.com and annualcreditreport.com to monitor your score yourself. If your score remains above 740 between all three for a few months, you should be good to go.

How Lenders Decide Your Score

There are several different credit scores your lender will likely use to assign you an interest rate. I wish it were as easy as looking up your FICO score with a service like Mint.com and being prepared to receive a mortgage. But, alas, it is more complicated. There are three different FICO score versions that can be used by a lender:

  • Equifax Beacon 5.0
  • Experian/Fair Isaac Risk Model v2
  • TransUnion FICO Risk Score 04

How they decide your number:

  • If all three scores are different, they use the middle score
  • If two of the scores are the same, they use that score, regardless of whether the two repeated scores are higher or lower than the third score

In Summary

You and I can get the best interest rate on a home mortgage with a 740 credit score. Now that you know the answer, it’s time to either wait until your credit approves, move forward knowing you’ll pay a higher rate than some people, or go house shopping knowing you’re able to get a fantastic rate!

Tired of worrying about a credit score to buy a house? See our article covering mortgage lenders and banks who do manual underwriting.