What Credit Score Do I Need to Buy a House in 2019?

Credit Score Overview

The first thing the lender will check in 2019 to assess your ability to get a mortgage is your FICO score. There are other factors to qualify for a home loan, but your credit score is the most critical.

Before the mortgage market crash of 2008, it was much easier for people with low credit scores and undocumented income to get home loans. Lenders were not under as much scrutiny as they are now. Since the Dodd Frank Wall Street reform law was passed in 2010, lenders must have stricter requirements for issuing loans. While it is still possible to get a home loan with a lower credit score, you do need to document your income carefully.

Minimum Credit Scores for Mortgage Loans in 2019

Many first-time buyers think they do not have a high enough credit score to qualify for a home loan. They might think that their past credit problems mean that they must wait years to buy a home. But this is not necessarily true, even after the reforms in the mortgage market of 2010.

Generally, if you have a lower credit score in the low 600s and lower, your best bet is to get a loan from FHA. In most cases, FHA lending has the most reasonable requirements of any US mortgage available. For FHA to insure your loan, you need to only have a minimum score of 500. That level of credit score requires a 10% down payment.

However, we should stress that getting an FHA loan with a credit score below 600 is challenging, even with a higher down payment. Your chances of getting approved for a home loan through an FHA-approved lender are higher if you have at least a 580-credit score.

FHA loans are insured by the Federal Housing Administration, so lenders are able to give loans to people with lower credit scores. If you have at least a 580-credit score, you can get a loan with only a 3.5% down payment. You will need a minimum of a 500-credit score for FHA loans, but you will need a down-payment ranging from 5 to 10% if you have a score between 500 and 579.

Below are the minimum credit scores for 2019 for other types of mortgages:

VA loan: Technically there is no minimum credit score requirements for VA loans. However, a 620-credit score is a minimum score many VA lenders will request and some lenders require only 580. You can qualify for this loan if you are in the US military or are retired US military. This loan can be obtained with 100% financing and no mortgage insurance.
USDA loan: 620- 640 or higher credit score is required; 100% financing is possible. There are maximum income limits for this rural home loan program. Only homes that are in certain rural areas will qualify.
Conventional loan through Freddie Mac and Fannie Mae: You need to have at least a 620-credit score to qualify; some of these loans have 3% down payment options.
FHA 203k loan: 620 credit score is required for this rehab loan. You can get a 203k loan along with an FHA mortgage, so you can fix up the home you are buying.

Mortgage Lenders Do Not Just Look at Credit Score

While all lenders do have minimum credit scores to consider you for a loan, mortgage lenders today often will look at more of the application than just your FICO score.

Many lenders understand that millions of Americans went through a financially tough time during the last downturn. Millions went into foreclosure and some even went into bankruptcy. Just because you had a negative credit event on your credit report a few years ago does not mean that you are necessarily a bad risk today, even with a low credit score.

FHA in particular will look closely at your overall application to determine if they will give you a loan. The key thing is that your payment history for the last one or two years is steady, with no black marks. If you can show that the negative credit event is in the past and you have re-established yourself financially, you may be able to get approved for a home loan with a low credit score.

Lenders also will look at your total debt. If you do not have a lot of debt, this will go a long way towards getting your mortgage approval with bad credit.

Some of the compensating factors for a bad credit home loan are:

Low loan to value ratio
A lot of money in savings
Higher income
Low debt to income ratio
Several years of employment history with current employer