What Credit Score Do I Need to Buy a Home in Texas?

Updated March 29, 2022

If you've been renting but have dreamed of buying a home, it can be easy to dismiss that goal if you ask questions like "can I get a home loan with a 500 credit score?" or "will my interest rate be too high with a bad credit history?" The truth is that the best mortgage companies Texas offers want to see evidence of strong credit history, but there's no reason to dismiss the dream without doing some credit score research.

With the right mortgage lenders to guide you, some homebuyers can qualify for bad credit home loans. Here's what you need to know and how you can work on your credit reports over time to qualify for a home mortgage in the future if need be.

Credit Requirements for Conventional and FHA Loans

In many cases, conventional loan applications will only be approved if you have what's considered a good credit score, meaning a credit score of 620 or higher. Unfortunately, that can feel like a high bar to reach for many people who have had spotty credit histories or haven't used credit much to build a good score.

However, if you're planning to buy a new home, conventional loans are not your only option for financing. The requirements are a little lower for FHA loans, a set of loans specifically created to make mortgage loans more accessible for homebuyers who might not qualify based on the conventional loan standards. For VA loans (specifically for veterans and qualifying members of their families), the credit score threshold may be closer to 580. The minimum score for FHA loans will be similar, with 580 as the credit needed for FHA loan financing.

Because there is some wiggle room depending on other factors, you may find that mortgage companies don't specify a minimum credit score, encouraging you to apply regardless of your current credit situation. However, if your credit score is below 500, lenders might not offer loan options, even if you have other promising parts of your application, like a high income. Low credit scores send up red flags for potential problems. Mortgage lenders are responsible for lending in ways where the homebuyer isn't likely to default on the loan. 

Improving Your Score While Saving Money Can Help

If you look at these requirements and think, "my current credit score is well below these common cutoffs," you aren't out of the running for homeownership! In fact, waiting until you have a better financial situation can be helpful in two ways. One is that any youthful indiscretion weighing down your credit report matters less the longer ago they happened. This additional time also allows you to save more money for a down payment. Having a down payment saved up may not change your ultimate ability to qualify, but it can help you get more favorable terms, like a lower interest rate, if you do qualify. 

As for increasing your credit score, this will depend on your circumstances. If you've never really had credit accounts, opening a credit card for the first time, using it regularly, and paying the minimum balance on time every month is a great way to establish a track record. If you've had credit and had late payments in the past, you'll want to start making on-time payments every single month to get your credit score going in the right direction. You also may want to focus on improving your debt-to-income ratio rather than using every bit of credit you have since high "credit utilization" can impact your score as well. 

Got a Borderline Credit Score? Remember the Other Factors in a Loan Application

Maybe your score is 600 or 640—above the standard requirement but close to the limit. How else can you bolster your application for a mortgage loan? A strong employment history, consistent income, and low debt-to-income ratio can all help your case that you're a good candidate for a mortgage loan. 

Saving up for a larger down payment and having money in liquid savings after the purchase is also enticing to mortgage lenders since larger down payments reduce their risk. Having assets beyond the down payment shows you could make a payment even if you hit hard times in the future. If you know that your credit score is going to be in the borderline range, consider saving up for a little longer to make your candidacy for a mortgage loan even better.

Work With a Texas Mortgage Company for the Best Financing Options!

Here at Texas United Mortgage, we want to help you successfully experience homeownership with the best financing options. Whether you're going for a first-time loan or refinancing a home loan, we have the resources you need to understand minimum credit score requirements and what would have to change if you wanted to qualify for different loan products. As an FHA-approved lender, we're here for you! Reach out soon, and let's talk through your financing options. 

Our budget worksheet is designed to help you prepare for the real costs of homeownership! Download this free resource, "The Definitive Homebuying Cost Worksheet."