A conventional loan is a mortgage that’s not insured by a government agency. Most conventional loans are backed by mortgage companies Fannie Mae and Freddie Mac.
Fannie Mae says that conventional loans typically require a minimum credit score of 620. But lenders can raise their own requirements. FICO® scores for conventional homebuyers averaged 757 in the first 11 months of 2020, according to mortgage software firm Ellie Mae®.
Keep in mind: For a conventional mortgage, you’ll also typically need a low debt-to-income ratio, which measures how much of your monthly income goes toward debt expenses. Lenders usually look for a debt-to-income ratio of 43% or less, according to the Consumer Financial Protection Bureau (CFPB).
VA loans are loans that are guaranteed by the U.S. Department of Veterans Affairs. They’re meant for veterans, active-duty military members and eligible surviving spouses. The VA doesn’t set a minimum credit score for these loans, and lenders can develop their own requirements.
USDA loans are backed by the U.S. Department of Agriculture and are for homes in eligible rural areas. There are two main types of USDA mortgages. Direct loans are funded by the USDA, while guaranteed loans are funded by private banks and insured by the USDA.
The USDA has flexible eligibility requirements for these loans. According to the USDA, borrowers typically need a credit score of at least 640 for the direct loan and at least 680 to qualify for the guaranteed loan.
Mortgages insured by the Federal Housing Administration (FHA) are designed for people with less-than-perfect credit. These loans require smaller down payments than other types of mortgages. The U.S. Department of Housing and Urban Development says you may qualify for an FHA loan with a credit score of 500 as long as you put down at least 10%. With a higher credit score—one that’s at least 580—you may qualify with a down payment as low as 3.5%.