Your credit score is a three-digit summary of how you've managed debt, and it has an enormous impact on your mortgage options. Higher scores qualify for more loan programs, better interest rates, and lower costs. Lower scores limit options and increase the price of borrowing. Understanding credit requirements helps you know where you stand and what you need to do to qualify for the best terms.
Credit Score Requirements by Loan Type
Conventional loans typically require a minimum score of 620. However, borrowers at the minimum pay higher rates and may face larger down payment requirements. Scores above 740 get the best conventional rates. Each 20-point tier below that (720-739, 700-719, etc.) costs incrementally more in rate adjustments and fees.
FHA loans are more lenient: 580 minimum for 3.5% down, or 500-579 with 10% down. FHA is specifically designed for borrowers who can't qualify for conventional financing. But remember that FHA requires mortgage insurance for the life of most loans, making it more expensive over time.
VA loans have no official minimum credit score from the VA, but most lenders set their own floors—typically 620 or higher. Some VA specialists work with lower scores. VA loans offer exceptional terms (no down payment, no PMI), so finding a lender who accepts your score is worth the effort.
USDA loans officially require a 640 minimum for their streamlined approval process. Scores below 640 may still qualify through manual underwriting but face more scrutiny and documentation requirements.
How Credit Scores Affect Your Rate
Beyond minimum requirements, your score directly impacts your interest rate. Lenders use risk-based pricing: higher scores get lower rates because those borrowers are statistically less likely to default.
The impact is substantial. On a $300,000 loan, the difference between a 680 score and a 760 score might be 0.5% or more in rate. That's about $100 per month in payment difference—and over $36,000 in additional interest over 30 years. Improving your score before buying can yield significant savings.
Loan-level price adjustments (LLPAs) are fees that Fannie Mae and Freddie Mac charge for riskier loans. Lower credit scores, smaller down payments, and certain property types trigger these adjustments, which lenders typically pass through as higher rates. You might see this as a rate that's 0.25%, 0.5%, or even 1% higher than advertised rates for the best-qualified borrowers.
If Your Score Is Too Low
If your score doesn't meet minimum requirements, you have options. Wait and improve your credit—paying down balances and maintaining on-time payments for six months can significantly boost your score. See our guide to improving your credit score.
Consider FHA if your score is between 500-619. While not ideal for long-term costs, FHA provides a path to homeownership that you can later refinance into a conventional loan once your credit improves.
Find the right lender. Credit minimums vary by lender, especially for manually underwritten loans. Some specialize in working with lower-credit borrowers. A mortgage broker can help find lenders who might approve your application.