If you are a first-time home buyer, you’re likely asking a very common (and very important) question. What is the average credit score needed to buy a house? To get the answer, we decided to see what one of the three major credit reporting agencies, Experian, has to say on this subject. On the official Experian website, the answer to this question might surprise you:
“There is no set minimum score to buy a house.” That’s right, you just read a direct quote from the official site of the credit reporting agency, Experian. But that statement does NOT mean there are no FICO score or credit score standards.
Each lender has a set of credit score ranges it uses to determine creditworthiness. And many federally insured or guaranteed home loan programs will specify a minimum FICO score range. In the case of FHA home loans and FHA refinance loans, there is a predetermined limit.
What Are The FHA Home Loan FICO Score Requirements?
According to HUD 4000.1, the FHA Single Family Home Loan Handbook, borrowers with FICO scores of 580 or better are eligible for “maximum financing”, which basically means you would be approved from an FHA mortgage with the lowest down payment possible, 3.5%. Borrowers with FICO scores between 500 and 579 would technically be eligible for an FHA mortgage, but would be required to make a down payment of 10% instead of 3.5%.
Does this mean that all borrowers who meet these FICO score requirements are automatically eligible for an FHA home loan?
Participating lenders will have their own credit score requirements, and these may be higher than FHA minimums. So you will need to find a participating lender who is willing to work with your credit scores. In many cases, FHA lenders are looking for scores in the mid-600 range, but some borrowers may be able to get loan approval with lower FICO scores if they have what lenders call “compensating factors”.
Such factors may include a larger down payment, “substantial cash reserves”, assets or income that may offset the risk of the lower scores, etc.
FICO Scores Aren’t The Only Factor
Don’t forget that your credit report scores, while very important, are only one part of the data your lender will use to qualify you for your new home loan. Your history of payments-especially those in the last 12 months-will also be very important. If you are applying for an FHA mortgage and have missed payments of any kind on your credit history in the 12 months leading up to your loan application, your home loan application will be harder for the lender to approve.
FICO scores are very important, but they aren’t the only factor. It’s best to look at your “big picture” financial details and imagine what the lender might do looking at your data. Doing so can be a big help when trying to decide about how to best prepare for a new FHA mortgage loan.