If you’re looking into buying a house but your credit is poor, the first thing you need to do is check your credit score.

So what credit score is needed to buy a house? The answer is, it varies, but you can bet your FICO score is the first thing a mortgage lender will check when seeing if you qualify for a loan. 

While there are many factors involved in qualifying for a loan, your credit score is the most important.

The minimum credit score you need to purchase a home will depend on the type of home loan you’re trying to secure. Here’s a consensus of what we found you can expect based on the type of loan you’re applying for:

Conventional Loans: Conventional loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. These loans aren’t insured by a government agency and conform to certain standards set by the government-sponsored entities Fannie Mae and Freddie Mac. They’re by far the most commonly used mortgage loans.

FHA Loans: Insured by the Federal Housing Administration, FHA loans have a minimum credit score of 500 if you make a 10% down payment or 580 if you put down 3.5%.

VA Loans: There’s no minimum credit score set by the U.S. Department of Veterans Affairs, but lenders typically require a score of 620 or higher. For some mortgage lenders, it’s also possible to take out a VA loan with a credit score as low as 500.

If your credit score is in great shape, you may have several different loan types from which to choose. But if your credit score is considered bad or fair, your options may be limited.

FHA: Lowest Credit Requirements

Many first-time home buyers believe they do not qualify, however, FHA loans have low requirements. If you have a poor credit rating, the best home loan to get is an FHA loan. FHA loans have the lowest credit requirements of any mortgage. Even though the minimum may be a 500 score with 10% down, getting approved for an FHA home loan with 10% down and a credit score in the 500-579 range is very difficult, Getting approved for an FHA mortgage with a 580+ score is much more likely than if your score was below 580.

If you have a 580 or higher FICO score you will just need a 3.5% down payment.

What is an FHA loan?

FHA loans are backed by the Federal Housing Administration. The FHA does not issue the loans; they insure them in case the borrower defaults on the loan. This reduces the risk for the lender, allowing them to reduce the credit score needed to buy a house.

Don’t Forget Your Debt-to-Income Ratio

You earn a steady income and pay your bills on time. Yet, it’s your debt-to-income ratio that could make or break your chances of getting a mortgage. Here’s why it matters for loan approval

Debt-to-income ratio is the percentage of your gross monthly income that goes toward paying debts. It is calculated by adding all of your monthly debt payments and dividing them by your gross monthly income, which is the amount of money you have earned before taxes and other deductions are taken out.

A good rule of thumb is to keep the debt-to-income ratio below 36%. This will increase your chances of getting a loan.

For example, if you pay $1,500 a month for your mortgage, another $200 a month for an auto loan and $300 a month for remaining debts, your monthly debt payments add up to $2,000. If your gross monthly income is $6,000, then your debt-to-income ratio is 33% ($2,000 is 33% of $6,000).

On the other hand, if your gross monthly income is $6,000, and you are paying $3,000 in monthly debt, your debt-to-income ratio is 50%.

Lenders generally look for the ideal front-end ratio – just your mortgage debt – to be no more than 28%, and the back-end ratio – including all monthly debts – to be no higher than 36%. 

With that in mind, you might want to put off buying that high-end car with an $800 monthly payment if you’re trying to qualify for a mortgage or decide on a much more reasonably priced car instead.

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