Understanding Your Credit Score and How It Impacts Your Home Loan

Your credit score is a snapshot of your financial habits — how consistently you pay back loans, how much debt you carry, and how long you’ve been using credit. It’s represented by a three-digit number ranging from 300 to 850, and the higher your score, the more trustworthy you appear to lenders.

When buying a home, your credit score plays a major role in determining the type of mortgage you qualify for, your interest rate, whether you’ll need mortgage insurance, and even some of your closing costs or lender perks.

What Your Credit Score Means for Your Mortgage Options

500–580: This is the lowest qualifying range. You’ll only be eligible for FHA loans and will need a down payment of at least 10%.580–619: You might qualify for an FHA loan with just 3.5% down. Options expand slightly, but rates may still be higher.620–669: You’ll gain access to more loan types, including conventional and VA loans, though terms may not be the most competitive.670–700: A strong range that opens the door to better interest rates and greater flexibility.700–740: You’ll enjoy lower rates and favorable terms from most lenders.740+: Top-tier credit. You qualify for the best rates and the broadest selection of mortgage products.

FHA Loans: A Great Option for Lower Credit Scores

FHA loans, backed by the Federal Housing Administration, are designed for buyers who don’t have perfect credit. With a score as low as 500 (and a 10% down payment) or 580 (with 3.5% down), FHA loans make homeownership possible for many first-time or credit-challenged buyers.

Keep in mind, these loans come with Mortgage Insurance Premiums (MIP) that protect lenders but increase long-term costs. If your down payment is under 10%, MIP lasts for the life of the loan; if it’s 10% or more, it drops off after 11 years. For those in stronger financial standing, exploring other loan options could save money over time.

Conventional Loans: The Standard for Strong Borrowers

Conventional loans come from private lenders and aren’t backed by the government. They follow guidelines set by Fannie Mae and Freddie Mac and typically require a minimum credit score of 620.

Borrowers with scores above 700 often enjoy the best rates and loan terms. One key advantage of conventional loans is the ability to avoid Private Mortgage Insurance (PMI) by putting down at least 20%.

These loans are ideal for borrowers with steady income, good credit, and enough savings for a larger down payment. However, if your credit is average or funds are tight, you may face higher interest rates or stricter qualification requirements.

VA Loans: A Rewarding Option for Military Members

VA loans, supported by the Department of Veterans Affairs, are available exclusively to eligible veterans, active-duty service members, and surviving spouses. The VA doesn’t set a minimum credit score, but most lenders look for around 620.

VA loans are especially attractive because they require no down payment and no private mortgage insurance. Instead, most borrowers pay a one-time VA funding fee of 1.25% to 3.3%, depending on factors like your down payment and whether it’s your first VA loan. This fee can be rolled into your loan, and some veterans (such as those receiving disability benefits) are exempt.

These loans are also more forgiving with debt-to-income ratios, making them a great path to homeownership for qualified military families.

USDA Loans: A Smart Choice for Rural Homebuyers

USDA loans, backed by the U.S. Department of Agriculture, help moderate-income buyers purchase homes in approved rural areas. While the USDA doesn’t specify a minimum credit score, most lenders look for 620–640 to qualify automatically through the Guaranteed Underwriting System (GUS).

USDA loans offer zero down payment and competitive interest rates, but they’re limited to eligible rural locations and income thresholds. If your target home falls within a qualifying area, this can be an excellent option for affordable homeownership.

Jumbo Loans: Financing for High-Value Properties

Jumbo loans are used for homes priced above standard loan limits — $766,550 in most areas (and up to $1,149,825 in high-cost regions for 2024).

Because these loans aren’t backed by Fannie Mae or Freddie Mac, they come with stricter requirements. You’ll generally need a credit score of 700 or higher, a larger down payment, and strong financial reserves.

Jumbo loans are perfect for buyers purchasing luxury or high-value properties, but if your credit or savings fall short, you may find qualifying more difficult. In that case, staying within conventional loan limits could be the smarter move.

Beyond Credit Scores: The Bigger Picture

While securing the lowest rate possible is important, it’s not the only factor that matters. Sometimes, taking on a slightly higher rate or less-than-perfect loan can still be a smart move if it helps you build stability and long-term wealth.

If you’re currently renting in an expensive area, owning a home could actually reduce your monthly expenses while building equity instead of paying rent. Homeownership also offers emotional rewards — stability, creative control, and a sense of belonging — all while growing your financial future.