How does my credit impact buying a house?

Q: What credit score do you need to buy a house?

It depends on the loan. Conventional loans generally require at least 620, FHA loans allow 580 with 3.5% down (or 500 with 10% down), and VA and USDA loans have no official minimum, though many lenders look for 620. Higher scores do not just get you approved, they earn meaningfully lower interest rates and cheaper mortgage insurance, so improving your score before applying pays off.

Q: How much does a low credit score raise your mortgage rate?

The gap is smaller than most buyers expect. Between a 760-plus score and the 620 to 639 tier, conventional pricing can run roughly 0.50% to 1.00% higher, depending on loan-to-value and program, per Fannie Mae's loan-level price adjustment matrix. On a $250,000 loan that adds about $80 to $170 a month and roughly $30,000 to $60,000 in interest over 30 years. Lower scores also raise private mortgage insurance premiums when you put less than 20% down.

Q: Does applying for a mortgage hurt your credit score?

A mortgage application triggers a hard inquiry, which typically costs a few points. Credit scoring models count multiple mortgage inquiries within a 14-to-45-day window as a single inquiry, so shopping several lenders does not multiply the damage. After closing, the new loan can dip your score 15 to 40 points temporarily, then recover as you build on-time payment history.

Q: How long does it take to improve credit before buying a house?

Meaningful improvement usually takes three to six months of on-time payments, paying credit card balances below 30% (ideally under 10%) of their limits, and disputing report errors. Larger gains, recovering from collections or building thin credit, can take a year or more. Start by pulling your free reports at AnnualCreditReport.com, and avoid opening new accounts in the months before applying.

Written by Samantha SheltonNMLS 1647301Updated September 2026

Couple reviewing finances at their kitchen table while learning how credit impacts buying a house

Your credit decides four things when you buy a house: whether a lender approves you, the rate you are offered, what mortgage insurance costs, and sometimes how much you must put down. The floors are lower than most buyers assume (FHA insures scores as low as 580 with 3.5% down, and 500 – 579 with 10% down) while the best conventional pricing clusters at 740 and up, where FICO’s “Very Good” tier begins.

Credit is not a pass/fail gate. It is a pricing dial. Two buyers with identical income, down payments and houses can be quoted rates a full percentage point apart because one sits in a higher credit-score band, a difference worth tens of thousands of dollars over 30 years.

Learn what score each loan program requires, what a lower score costs per month, what a mortgage does to your credit, and how to raise your score first. If you are earlier in the process, start with our Mortgage Basics guide.

Key takeaways:

FHA opens the door at 580: FHA-insured loans allow a 580 score with 3.5% down and a 500 – 579 score with 10% down; below 500 there is no FHA financing at all.
740 is where the best pricing starts: Conventional loans are priced in credit-score bands, and on a $250,000 30-year fixed loan every 0.25 percentage point of rate is worth roughly $40 a month.
You get a 45-day shopping window: The CFPB says multiple mortgage credit checks inside 45 days are recorded as a single inquiry, so comparing lenders costs you almost nothing in score.

What do the credit score ranges mean when you buy a house?

500 is the lowest score any agency guideline names, FHA’s floor, and only with 10% down. VA and USDA publish no minimum at all, leaving the lender to set one. Above 500, FICO’s 300 – 850 scale sorts borrowers into five tiers lenders price against.

FICO Score range	Rating	What it means for your mortgage
800 – 850	Exceptional	Every program is open, at the cheapest pricing band available.
740 – 799	Very Good	The practical target. Conventional pricing is at or near its best and PMI is cheapest here.
670 – 739	Good	Approvable on conventional and FHA, but you pay a measurable premium over the 740+ bands.
580 – 669	Fair	FHA territory at 3.5% down. Conventional is possible, at a higher rate and costlier PMI.
300 – 579	Poor	FHA down to 500 with 10% down. Below 500, no FHA financing at all.

Which score counts? The CFPB notes mortgage lenders typically pull all three nationwide bureaus (Equifax, Experian and TransUnion) then use the middle score to set your rate. Not the highest, not an average. On a joint application, lenders generally use the lower of the two middle scores.

The score summarizes your report. FICO weights it as payment history 35%, amounts owed 30%, length of credit history 15%, new credit 10% and credit mix 10%. Knowing what makes up your FICO credit score tells you which lever moves fastest. Our guide to a good credit score to buy a house walks the tiers in depth, and our credit and qualifying library covers what sits around them.

How does your credit score affect mortgage approval?

Your score decides which programs are open to you, and the agency minimums sit below the numbers most buyers carry around.

Loan type	Program minimum score	What that gets you
Conventional (Fannie Mae)	None on Desktop Underwriter loans; 620 fixed-rate and 640 ARM if manually underwritten	Down payments from 3%, cancellable mortgage insurance, no upfront premium.
FHA	580 for maximum financing; 500 – 579 capped at 90% LTV; ineligible below 500	3.5% down at 580 and above, or 10% down in the 500 – 579 band.¹
VA	No VA minimum credit score	Nearly 90% of VA-backed loans are made with no down payment.²
USDA (Guaranteed)	No program minimum credit score	Zero down in eligible rural areas, subject to income limits.

The conventional row changed recently. Fannie Mae removed the 620 minimum representative credit score from Desktop Underwriter, its automated underwriting system, for new loan casefiles created on or after November 16, 2025; DU now judges creditworthiness through its own credit risk assessment. The 620 fixed-rate and 640 ARM minimums still apply to manually underwritten loans. On most conventional files, approval now comes from the automated recommendation, not a published cutoff.

Every number there is an agency floor, not a lender floor. Lenders may require more, and most do. Those extra requirements are called overlays. One lender sets its FHA floor at 640 while another writes to the 580 minimum, which is why a file declined in one place gets approved in another. That is the argument for a broker: we are not talking a lender out of an overlay, we are moving the file to one that never had it. See buying a home with bad credit for how that works.

Underwriters also read the report behind the number. Bankruptcies, foreclosures and short sales carry their own waiting periods by program, open collections may need to be paid or documented before closing, and a late payment inside the last 12 months hurts far more than an old one.

How does your credit score affect your mortgage rate?

Between the top scoring tiers and the below-640 band, the bottom row of the current credit-score grid, conventional pricing commonly differs by roughly 0.50 – 1.00 percentage point, depending on loan-to-value ratio and program.³ That is the gap worth knowing before you apply, because it is the one your score can still move.

The mechanism is not a loan officer’s opinion of you. Fannie Mae publishes a Loan-Level Price Adjustment Matrix, incorporated by reference into its Selling Guide, that assigns a price adjustment based on a loan’s representative credit score and loan-to-value ratio. Lenders usually pass it through as a higher rate rather than cash at closing, so the rate sheet knows your score band before underwriting starts.

What the gap is worth on a $250,000 30-year fixed loan:

Every 0.25 percentage point of rate: about $40 a month.
A 0.50 point gap: roughly $80 a month, and near $29,000 in additional interest over the full term.
A 1.00 point gap: roughly $170 a month, and near $62,000 in additional interest over the full term.

That is what makes a three-month credit push worth doing. It also makes shopping non-optional, and most buyers skip it: a CFPB report released January 13, 2015 found almost half of consumers who take out a mortgage fail to shop before applying, and fewer than one in four applies with more than one lender or broker. The same research found rates spanning more than half a percentage point among borrowers with good credit and 20% down. Our comparison of prequalified vs. preapproved explains which step puts a real rate in front of you.

What else does your credit score cost you?

Rate is the biggest line your score moves, but mortgage insurance and your minimum down payment move with it.

Conventional PMI is priced off your score: With less than 20% down, private mortgage insurance is set by the insurer’s rate card, keyed to credit score, loan-to-value ratio and term. The same 5%-down loan can cost two borrowers very different amounts.
FHA’s premium ignores your score: HUD sets the annual FHA mortgage insurance premium by base loan amount, loan-to-value ratio and term. Credit score is not in the table, so a 600-score and a 780-score borrower pay the same rate on the same loan. Part of why FHA is often the better answer at the low end.⁴
Your down payment floor moves: On FHA, 3.5% down is a credit-score privilege. Fall below 580 and the minimum becomes 10% on a $250,000 purchase, $16,250 more cash at the table.

The lasting difference is when the insurance stops. Conventional PMI comes off under the Homeowners Protection Act by three paths that buyers routinely mix up:

Your request at 80%: Ask your servicer in writing to cancel PMI on the date your balance is scheduled to fall to 80% of the home’s original value. You need a good payment history and must be current, must certify there are no junior liens, and may have to show the property has not declined below original value.
Automatic termination at 78%: Your servicer must terminate PMI on its own on the date your balance is scheduled to reach 78% of original value. The one condition is being current.
The midpoint backstop: If neither has happened, your servicer must end PMI the month after you reach the midpoint of your loan’s amortization schedule, year 15 of a 30-year loan, again if you are current.

“Original value” means the lower of the sales price or the appraised value at purchase, so paying down principal gets you there faster than a rising market. FHA is different: its annual premium runs 11 years on lower loan-to-value loans and the full term on the highest, which is why buyers who start on FHA and rebuild their score often refinance to conventional.

How does getting a mortgage affect your credit score?

Applying costs a few points, closing costs more, and both reverse.

Shopping is protected. The CFPB states that within a 45-day window, multiple credit checks from mortgage lenders are recorded as a single inquiry. FICO’s logic backs that up: newer FICO Score versions use a 45-day rate-shopping deduplication window, older versions 14 days, and mortgage inquiries under 30 days old are ignored entirely. Four lender quotes in one month cost what one costs.

Closing causes a temporary dip. A new mortgage is a large account with no payment history, and it lowers the average age of your accounts, two of FICO’s five categories working against you at once. Borrowers commonly see somewhere in the range of 15 to 40 points come off in the first months. Thin files move a lot; long, deep files barely notice.

Then it reverses, and then some. Payment history is 35% of your FICO Score, and a mortgage feeds it monthly for decades. A year of on-time payments generally leaves borrowers ahead of where they started.

How to improve your credit before you apply

The CFPB is direct: if you do not plan to buy for at least six months, you may be able to improve your scores and get a better rate.

Pay every bill on time: At 35% of the score, this is the heaviest lever.
Get card balances under 30% of their limits: The CFPB notes experts advise keeping credit use at no more than 30% of your total limit. Lower is better, and it moves within one or two statement cycles, faster than anything else here.
Pull your reports and dispute errors: All three nationwide bureaus now permanently offer weekly reports. Get your free official credit reports at AnnualCreditReport.com and read every line before a lender does.
Leave your accounts alone: New credit is 10% of the score and each new account shortens your average account age, so a furniture card three weeks before closing is a real problem. Closing a paid-off card is the mirror mistake, it drops that limit from your utilization math.

If the report has real damage (collections, charge-offs, a bankruptcy) the timeline is longer, and buying while you rebuild may still be the better move.

What lenders look at besides your credit score

Credit is one of four underwriting pillars in the mortgage approval process, and a strong score will not carry a file that fails the others.

Debt-to-income ratio: Monthly debt payments divided by gross monthly income. There is no single federal ceiling, as the CFPB’s explanation of debt-to-income ratio puts it, different loan products and lenders have different DTI limits. On conventional loans the workable maximum comes out of the automated underwriting decision on your file, not a published number. See how DTI is calculated and how to improve your debt-to-income ratio.
Income and employment stability: Lenders want a documented, continuing income stream, with two years in the same line of work the usual benchmark.
Assets and reserves: Your down payment and closing costs need a documented source, and some programs require reserves left over after closing.
Loan-to-value ratio: LTV and credit score drive conventional price adjustments together, so improving either improves your quote.

A 780 score does not rescue a 55% debt-to-income ratio, and a 640 score with low debt and steady income is a stronger file than most buyers assume.

What Michigan buyers should know

Michigan’s flagship first-time buyer program has a firm credit floor: the MI Home Loan through MSHDA requires a minimum credit score of 640, well above FHA’s 580 program minimum, which makes credit repair the deciding factor for many Michigan buyers who want its down payment assistance. The program also requires a housing education class and carries a statewide sales price limit of $566,355 after June 1, 2026.

How Align helps when credit is the question

Another lender's no is not always the final answer. Lenders add their own rules on top of the program's, and Samantha can take your file to a wholesale lender whose rules fit it.

If it is not time yet, she will say so and tell you what to work on first. It is also why local real estate agents bring her in for second opinions.

Take a mortgage readiness review

FAQ: Credit and buying a house

Here are answers to common questions about how credit affects buying a house.

What credit score do you need to buy a house?

It depends on the program. FHA insures scores as low as 580 with 3.5% down and 500 with 10% down, VA and USDA set no program minimum, and Fannie Mae no longer applies a fixed minimum to loans run through Desktop Underwriter, though manually underwritten conventional loans still require 620 fixed-rate and 640 ARM. Lenders add their own floors on top. Our guide to a good credit score to buy a house breaks down each tier.

How much does a low credit score raise your mortgage rate?

Smaller than most buyers fear, larger than they can ignore. Conventional loans are priced in credit-score bands through Fannie Mae’s loan-level price adjustments, and between the top tiers and the below-640 band that commonly runs 0.50 – 1.00 percentage point. On a $250,000 30-year fixed loan, that is roughly $80 – $170 a month and near $29,000 – $62,000 in extra interest. A lower score also raises your PMI premium, see how credit and qualifying fit together.

Does applying for a mortgage hurt your credit score?

A little, and briefly. The application triggers a hard inquiry that typically costs a few points, and the CFPB says multiple mortgage credit checks inside a 45-day window are recorded as a single inquiry, so comparing lenders does not multiply the damage. After closing, the loan dips your score temporarily before on-time payments rebuild it. Knowing the difference between prequalified vs. preapproved tells you which step involves a hard pull.

How long does it take to improve credit before buying a house?

Plan on at least six months. The CFPB says buyers not purchasing for at least six months may be able to raise their scores and get a better rate, mainly by paying every bill on time and paying card balances toward the widely advised 30%-of-limit ceiling. Collections and thin files take a year or more. Pull your free reports at AnnualCreditReport.com, dispute anything wrong, and work the list in our credit repair strategies for home buyers.

The bottom line on credit and buying a house

Your credit score decides which loan programs are open to you and what they cost. FHA insures down to 580 with 3.5% down and 500 with 10% down, VA and USDA set no program minimum, and conventional approval now comes out of the automated underwriting decision rather than a fixed 620 cutoff, with 620 fixed-rate and 640 ARM minimums still applying to manually underwritten loans. Pricing then runs in credit-score bands: on a $250,000 30-year loan, each 0.25 percentage point of rate is worth about $40 a month.

If you’re ready to find out what your credit actually qualifies you for, talk to Align Lending. We’ll shop your scenario across our lender network and show you what each lender prices your score at, side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA minimum decision credit scores, loan-to-value limits and program rules are set by HUD and are subject to change; individual lenders may require higher scores than the FHA program minimum. Return to text.

2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA does not set a minimum credit score; participating lenders set their own credit standards. Return to text.

3. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. The 0.50 – 1.00 percentage point spread and the $250,000 payment figures are illustrative. Your actual rate, payment and price adjustments depend on your credit score, loan-to-value ratio, loan program, property and market conditions at the time you lock. Return to text.

4. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA annual mortgage insurance premium rates and durations are set by HUD by mortgagee letter and are subject to change. Return to text.

Sources: FICO Score range of 300 – 850 and the Poor, Fair (580 – 669), Good (670 – 739), Very Good (740 – 799) and Exceptional (800+) tiers, plus category weights of payment history 35%, amounts owed 30%, length of credit history 15%, new credit 10% and credit mix 10%, and rate-shopping deduplication windows of 45 days on newer FICO Score versions and 14 days on older versions with a 30-day inquiry buffer, myFICO and FICO. FHA minimum decision credit score of 580 for maximum financing, 500 – 579 limited to 90% loan-to-value and ineligibility below 500, HUD, FHA Single Family Housing Policy Handbook 4000.1. FHA annual mortgage insurance premium set by base loan amount, loan-to-value ratio and mortgage term, with durations of 11 years or the mortgage term, HUD Mortgagee Letter 2023-05. No minimum credit score for DU loan casefiles and minimums of 620 for fixed-rate and 640 for ARMs on manually underwritten loans, Fannie Mae Selling Guide B3-5.1-01; removal of the 620 minimum representative credit score for new DU loan casefiles created on or after November 16, 2025, Fannie Mae Announcement SEL-2025-09 and DU release notes. Price adjustments assessed on representative credit score and loan-to-value ratio, Fannie Mae Loan-Level Price Adjustment Matrix, incorporated by reference into the Selling Guide. No VA minimum credit score and nearly 90% of VA-backed loans made with no down payment, U.S. Department of Veterans Affairs. No credit score requirement in the Single Family Housing Guaranteed Loan Program, USDA Rural Development. Multiple mortgage credit checks within a 45-day window recorded as a single inquiry, lenders’ use of the middle of three bureau scores, higher scores qualifying for lower rates, different DTI limits by loan product and lender, the six-month improvement window and the 30%-of-limit credit use guidance, Consumer Financial Protection Bureau. PMI cancellation on borrower request at 80% of original value, automatic termination at 78% of original value and termination the month after the midpoint of the amortization schedule, each conditioned on the borrower being current, Homeowners Protection Act; CFPB. Almost half of borrowers not shopping before applying, fewer than one in four applying with more than one lender or broker, and rates varying more than half a percentage point among borrowers with good credit and 20% down, CFPB report released January 13, 2015. Permanent free weekly credit reports from the three nationwide credit bureaus at AnnualCreditReport.com, Federal Trade Commission. MI Home Loan minimum credit score of 640, required housing education class and statewide sales price limit of $566,355 after June 1, 2026, Michigan State Housing Development Authority.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Credit score requirements, agency guidelines, mortgage insurance rates and program rules change and vary by lender, program and property; confirm your figures with your Loan Estimate and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.