The credit score needed to buy a home depends on the types of loans. You need at least a 680-credit score to get a conventional loan, but you get approved for an FHA loan with a credit score as low as 500. Since it wouldn’t be reading this article if you were a potential cash buyer, therefore it is safe to say that credit scores are the most crucial part of the homebuying process. 

You can put 20 %, 3.5%, or 0.00% down and get approved for a mortgage.  The loans and terms are based on your credit score, which cannot be in the lowest quintile regardless of the percentage of your down payment.  Below are the typical home loans, and the credit score needed to buy a home:  

Conventional Loans

Conventional loans (conforming and jumbo loans) are the most popular type of mortgage in the United States.  Conforming loans are conventional loans backed by Fannie Mae and Freddie Mac, and jumbo loans are loans that exceed $484,350 that Fannie Mae and Freddie Mac won’t guarantee.

Fannie Mae and Freddie Mac are two government-enterprises (GSEs).  Their primary responsibility is to maintain a liquid secondary mortgage market, which allows banks, credit unions, and private lenders to make more home loans

Because of their strict credit and income requirements, conventional loans are the most challenging home loans to get.  Potential borrowers who want to get approved for a conventional loan need a credit score of at least 680.  The higher the score, the lower the interest rate on loan.  For example, JP Morgan Chase offers the best interest rate to potential borrowers with credit scores 740 or higher.  

FHA Loans

The Federal Housing Administration (FHA) loans are available to low-to-moderate income borrowers.  You can get approved for an FHA loan with a 580-credit score. Moreover, you can put as little as 3.5% down.  If your credit score is between 500 and 579, you can make a 10% down payment and get approved for an FHA loan.

USDA Loans

According to the Census, rural areas cover 97% of America’s land area but contain 19.3 percent of the population.  The Rural Housing Service (RHS), which is an organization within the U.S. Department of Agriculture, purpose is to guarantee mortgages issued to rural borrowers.  Home loans backed by RHS are USDA loans.

The interest rate on USDA loans can be as low as 1%, and you need at least a credit score of 640 or above to get approved.

VA Loans

VA loans are for military members and veterans.  VA loans have limited closing costs, no down payment, and no private mortgage insurance (PMI).  

Each of the banks and private lenders that the United States Department of Veterans Affairs approved to underwrite VA loans has its company-specific standards.  However, most lenders require a 620 or above credit to get approved for a mortgage loan.

The Bottom Line

Each of the different types of mortgage loans mentioned above has its pros and cons.  For example, if you live in a rural area and qualify for a USDA loan, the loan might become unaffordable even if your interest rate is 1 percent.  You should at least try to wait until you have 20% or more to put down and have a 700 credit score or higher.