What Credit Score Do You Need to Buy a House? Answered

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 Credit Score to Buy a House

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 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 articles covering mortgage lenders and banks who do manual underwriting and The Pros and Cons of Buying a Home with Cash and How Much Shipping Containers Cost (in case you want to build a recycled abode).

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  • I agree with your explanation about interest rates. We must have the minimum credit score to get considered for the loan and with the higher credit score the chances gets increased. Thanks for sharing this interesting topic with us.

  • Dividend Drive says:

    Very interesting indeed, Will.

    I have had a credit card for years now (since my late teens) though I have always paid back in full every month. Recently I got another credit card which offers cashback but has a higher interest rate and credit limit. As before, I always pay back in full. Chiefly this was to get something back from my spending but also to bolster my credit rating.

    It would be interesting to know whether the magic 740 credit score is similar here in the UK. It seems a logical figure: strong but not perfect! If anyone knows about the UK context it would be very interesting to hear.

    I have not looked at my credit rating yet as it has little relevance to me currently. I will start to be a bit more aware, however, soon.

  • I need a 625+ credit score before I would even rent you my apartment. A credit score of 740 is needed for investment properties if you are getting a mortgage. Along with a sizable down stroke and solid bank balance.

    • William Lipovsky says:
      First Quarter Finance logostaff

      Ooooh, good news. My credit score just crossed the 740 threshold last month. Thanks for the tip.

  • Christine says:

    “Plus, with one of these loans you only need a 3.5% downpayment” anyone else find that terrifying?!?!?!??!?!!?

    • William Lipovsky says:
      First Quarter Finance logostaff

      People could get into a lot of trouble with this… However, opportunity cost is something to consider. If you can make better use of your money elsewhere, why do a big down payment? For instance, it’s wiser to do a low DP than to set aside a large DP and have to get a business loan for your startup. A mortgage is usually really cheap money so some people enjoy using it to full advantage.

  • Congrats on that shiny new credit card! Use it wisely 🙂

    It’s surprising how much your score can vary between the different reports. The last time I checked mine, there was a 30 point difference between the three reports.

    • William Lipovsky says:
      First Quarter Finance logostaff

      So far, so good! Although I can see how these things can increase one’s desire to spend. It’s kind of fun counting up the rewards!