The average credit score to qualify for a mortgage is roughly 760 in 2024, a 60 point rise since the financial crisis in 2008. As mortgage rates increase due to inflation and Fed rate hikes, it's more important than ever to have a great credit score to get a lower mortgage interest rate.
Thankfully, gone are the days of negative amortizing liar loans to people with terrible credit. It has become far more difficult to get a mortgage today. Let's look at some data.
The Average Credit Score To Qualify For A Mortgage
According to the latest quarterly report on household debt and credit by the New York Fed, 9 out of 10 U.S. mortgages go to borrowers with a score of 650 or better. Three quarters go to borrowers with scores of better than 700. Meanwhile, the average credit score for the 50th percentile is about 760.
Here is a graphical representation of the average credit score at origination. The minimum credit score required to qualify for a mortgage is 620. But if your credit score is in the 600s, you will pay an exorbitant rate that will make buying a home unaffordable.
Based on my experience refinancing multiple mortgages multiple times since 2003, having a credit score under 700 is not going to cut it. You now need a credit score of 760 or higher to qualify for the best rates on average.
Even a 760 might not offer the best rate based on my current refinance. My loan officer started the application process by asking if I had a credit score of over 800. As banks tighten lending standards, he said only those with credit scores above 820 are getting the best rates.
If you do end up qualifying for a mortgage with a less than a 760 credit score, your lender will likely be charging you 0.125% – 0.75% more than if you had had a 760+ credit score.
FICO Score Ranges
Stop thinking that a credit score above 670 is “good” according to FICO. It really isn't. Just like how it's not good the average American has a median net worth of only about $87,000, has never traveled abroad, and will likely die younger than they are supposed to due to cardiovascular diseases.
Being average or median is not good when it comes to our finances. We are in a winner-take-all society.
Mortgage Originations By Credit Score
To highlight this winner-take-all reality, take a look at this mortgage originations by credit score chart by the NY Fed.
The light blue and dark grey sections indicate qualified borrowers with credit scores of 720+. They account for roughly 80% of all mortgages. Notice how the light blue line is gaining in percentage since 2009.
You need a minimum of 620 to qualify for a government-backed loan by Fannie Mae and Freddie Mac. However, the government, in all its wisdom, allows you to qualify for a Federal Housing Administration mortgage with a credit score as low as 500 if you can make a down payment of at least 10%.
When a downturn comes, borrowers who received government-backed loans will likely suffer the highest default rates. Their defaults will likely put negative pressure on higher credit score borrowers.
Loading ...Wait Until A Credit Score Of 720+ To Get A New Mortgage
Owning a home is not a right.
Pre-2008, too many people, who really couldn't afford to, bought homes. As a result, we went through a devastating global financial crisis. While we can certainly blame lenders for lowering their credit standards and coming up with creative mortgages to entice unwary borrowers, we should also not shirk responsibility for our decisions.
The easy way to save homebuyers from potential loss and save the economy from potential catastrophe is to not take out a mortgage until you have a credit score of 720 or higher. The current minimum credit score to buy a home of 620 or higher is too low. This way, if things go south, default rates won't increase as much as they would for borrowers with lower credit scores.
The idea is similar to not eating a cookie until you've run at least the number of miles it takes to burn off that cookie. If you don't, you will eventually get out of shape.
The idea is also similar to not buying a car until you make 10X its cost in annual salary. Although the 1/10th rule for car buying is extreme, if you follow it, you'll likely never experience car buying remorse.
Average U.S. Credit Score Hits A New High
Since 2012, the housing market has had a tremendous bull run. There should be no urgency to buy a home at near record-high prices without the best mortgage terms. Instead, I would work to improve your credit score to 720+ before applying for a mortgage.
The average U.S. FICO credit score is now about 717 as of 2024. This is a new high, which shows how much stronger the average U.S. consumer is from 2009. Below is a chart based off FDIC data.
The five main components that determine your credit score are: Payment History (35%), Amounts Owed (30%), Length Of Credit History (15%), New Credit (10%), and Types Of Credit Used (10%).
The weightings of each component are rough estimates that vary from person to person. For example, someone who just started taking out credit may have a lower percentage weighting in the Length Of Credit History component vs. someone who has used credit for over 30 years.
The main way to improve your credit score is to always pay your debt on time for as long as possible. Do not try and game the FICO scoring system. Keep things simple.
When it comes to taking on debt, stay disciplined.
Refinance Your Mortgage When Rates Are Low
Check out Credible, one of the largest online lending platforms today that will get lenders to compete for your business. Fill it your needs and get no-obligation real quotes from qualified lenders in under three minutes.
The process is easy and free. I was about to refinance my mortgage in 2019 and get an awesome new 7/1 ARM purchase loan in 2020.
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to achieving financial freedom. It is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.
There is pent-up demand growing for real estate due to elevated mortgage rates. But life goes on and mortgage rates will eventually come down. When they do, expect the return of major bidding wars as capital gets unleashed.
Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
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For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
hi Sam,
I am a serious reader and listener to your podcasts and shows. You are doing a fantastic job where you talk about subjects that is extremely interesting, and I totally relate to you. I am 47 years old living in Chicago with a 4-yr old girl and I am looking to eventually leave my profession as a trader for an RIA firm when I turn 55 and move my family to Honolulu. Since you are thinking of moving to Hawaii soon, do you think the housing mkt there will have a large correction? From doing research, the avg price of a house there is over $650k, which is ridiculous because the avg salary there is no more than what people make here in Chicago. So if there is a correction in housing mkt there, do you think it can drop 20-30%? You talked about how difficult it is to get a mortgage, and I am thinking high-end homes will be severely affected. Thanks Sam and keep up the good work! I love it!!!!!!
Hi Troy – Nice to hear from you!
Yes, home prices in Honolulu is ridiculous given wages are so much lower than in the mainland.
The thing is, Hawaii has a ohana culture, meaning multiple generations living under one roof. So the household income is double or triple what the statistics show.
The high end housing market is correcting and has been correcting since about 2015-2016. The median priced housing market is slowing down too.
Related: In Real Estate, Watch Out For The Illusion Of Added Value
I’m assuming you mean besides drinking ALOT. Anything to numb the feelings I was overwhelmed with from my massive failure I had been through…I digress
Well I went to work for someone else for about 6 months (thats how long it took for me to realize I can’t work for anybody) so I got back into the real estate world. Utilizing my banking and finance background I started helping people with Short Sales to avoid that deficiency judgement possibility that was held over my head for 7 long years.
Thats also the time I was learning the credit repair hacks I teach nowadays as well as wrapping up my MBA.
Apparently you were starting this Samurai thing during that time as well?
Sam,
I love many of your posts and listen to the podcast. When I was listening to this episode I had a difference of opinion so wanted to comment here. I love having educated debates about finance topics so here it goes
1.) “The easy way to save homebuyers from potential loss and save the economy from potential catastrophe is to not take out a mortgage until you have a credit score of 720 or higher, instead of the current 620 or higher. This way, if things go south, default rates won’t increase as much as they would for borrowers with lower credit scores.”……
Have you considered the possibility that the score does not have as much to do with it as the LTV Loan to Value? For instance. I owned a mortgage brokerage in 2007. Was doing really well and had a 760 credit score when I got my zero down mortgage loan. Obviously when the market collapsed I lost everything including that home. It was much easier to walk away from because I did not have any skin in the game (zero down). I know the statistics of default borrowers and the correlation between credit scores and defaults, BUT is it a causation like your statement above. I teach people how to hack credit scores all day (based on what I had to learn after the foreclosure and my score dropping to a 460) but that would not change the fact of the ease of walking away from something that you have no money down on.
2.) “You need a minimum of 620 to qualify for a government-backed loan by Fannie Mae and Freddie Mac. However, the government, in all its wisdom, allows you to qualify for a Federal Housing Administration mortgage with a credit score as low as 500 if you can make a down payment of at least 10%. When a downturn comes, borrowers who received government-backed loans will likely suffer the highest default rates. Their defaults will likely put negative pressure on higher credit score borrowers.”
Have you considered the possibility the generalization of the statement? I work in a military town and see a ton of VA mortgages being completed every day. These fall up under the “government backed” loans you speak of. Also again would something have changed if I had 10% down in my old home….I don’t know but I am sure it would have made it harder to leave.
3.) “Since 2012, the housing market has had a tremendous bull run. There should be no urgency to buy a home at near record-high prices without the best mortgage terms. Instead, I would work to improve your credit score to 720+ before applying for a mortgage.”
You spoke about the recession coming in 2020 or 2021 and most people still have that knee-jerk reaction that a recession and a fall in housing prices correlate. So if ones happening the other must obviously be happening. If you review the last 5 recessions only 2 of them had housing prices falling
1980: Up 6.1%
1981: Up 3.5%
1991: Down 1.9%
2001: Up 6.6%
2008: Down 19.7%
Seeing that last number is what I assume you were basing advice on?
Here is what I want you to consider. Inventory for most of the country still sits at record lows. The builders did not build what they needed to during the crash and now we are faced with an inventory problem. There are some markets (luxury $1mil+) that are seeing a slowing of buyers and a raising of inventory, but with the average home in America costing in the mid 200 thousand range we see a massive shortage. This coupled with a strong job market and the rates where they are is bringing out even more buyers. Lower Supply AND Stronger Demand. Those factors alone show a strong market. We are not going to see the double digit appreciation we saw in the mid 2000’s but 3-5% year over year is projected by almost all real estate economists . So if you are spending time renting (which is going up faster than home appreciation in most markets) while working on your credit score to get the “best possible” rate and save $50 – $250 a month you could have purchased and increased your family net worth by $3,000 – $9,000 by the year you were working on credit.
Again I teach credit repair so I am all for working on credit and using hacks to boost scores, but as a long term rule waiting to save the little on interest payments does not seem financially prudent.
Thanks for allowing the rant Sam. Keep up the Great work and enjoy being a father (it’s great…..wait until the grandfather title comes on. I just got that title last year)
Shane
Hi Shane, may I ask whether you really lost everything if you put zero down on your home? From my perspective, the last nothing because you put down nothing. The people who lost were your neighbors, Who put down something and kept on paying their mortgage.
Wait what happened to our last comments?
You know Sam I can concede that’s a valid point from a singular aspect of the story.
Of course you have to consider when I said I lost everything I was not just discussing the foreclosure (although being thrown out of your home does something to your psyche). I also lost my livelihood and ability to provide for my family. So I would argue that it was bigger.
I think the point of the argument was to call attention to the 760 score I had and still had a foreclosure. The score is only a small part of the equation. Today your lower scores are REQUIRED to put skin in the game……WHICH WOULD……. validate your argument above about them losing something bigger by walking away thus a deterrent to do so.
Really enjoying the conversation.
My wife and I have an avg credit score of 825 that we have had for 15+ yrs. I noticed it went down to 814 when we were remodeling our primary home. I started snooping around and found the biggest input they use is the percentage of credit card used monthly. Example: Only card
We use-DiscoverCard limit is 19k and we were using up to 25-30% monthly when prior to remodeling it was 10% or less. As soon as project was completed the scores crept back up. Currently 831. Hope that helps.
I am confused with FICO scores. When I applied for mortgage earlier this year, my scores were between 730-760 with all three bureaus. The mortgage companies and my bank came back around 650. I was shocked at the discrepancy. My FICO scores was based on FICO score 8. I believe the mortgage companies and bank were not using the latest FICO version and probably using FICO version 4 or so. This drastically affected my interest rates and I did not bother to buy a house. Did this happen to anyone else?
They run mortgage scores.not fico 8.that 650 was probably a mortgage score.
The only problem with an 800+ credit score is actually getting it which is mostly a waiting game. Now I have many credit cards like 10+ (I love me some signup bonuses), never missed a payment, never paid interest, and usually have my utilization around 3%. I have no other debt besides credit cards, yet I am still stuck with a score at 760. My average credit history is 3.5 years. I think the only way to actually get me an 800+ score is to actually purchase my first property or take on some other crappy debt (like an auto loan) which I don’t want to do.
True. Time is a pretty big variable to getting to 800+. But I also think that more people can patiently wait before buying a property. At this point in the cycle, no need to rush to buy a house.
So reading other articles regarding ARM loans, I have a question I will try to simplify as much as I can: Apart from the lower monthly payment, are ARMs worth it if you ALSO make extra payments that go towards your principal balance?
The question of whether it’s “worth it” cannot be fully answered based on the information provided, but I can try to help a bit. ARMs typically offer you a lower initial interest rate but come with the risk that they’ll re-price to a higher rate. This repricing risk, however, is considerably higher for something like a 3/1 or 5/1 ARM where the fixed rate period is pretty short vs. a 7/1 or 10/1 ARM.
If you know with certainty or with high probability you will sell the house within 5 years, then sure, go with a 5/1 ARM. However, if you think you’ll stay there for 20 years, you’ll likely want a longer fixed rate period.
Regarding the issue of making extra payments, that seemingly tips the decision more towards taking an ARM, assuming a better interest rate, but it will depend how large the extra payments are. The reason I say this is because if you’re paying down your principal quickly, then even if you take out an ARM and it does eventually reprice to a higher interest rate, with the extra payments made you may not even owe all that much by that time so the rate will have a smaller effect.
The old school of building up high FICO score is CASH.
Fortunately, my wife and I came from the very backward families where our parents did not keep up much with the area of finance. They did not jumped on the bandwagon when the Credit Card revolution took off.
Growing up, we were conditioned to see them use CASH for all their needs.
When I first met my wife as a newly graduated engineer, she was more up to date with the trend than I was – she carried one master card.
We accumulated more credit cards along the way because the occasional deep savings we could not resisted. But, old habit died hard – we continued to use CASH for the majority of our needs.
Way before debit cards came into the picture, we setup functional credit card to auto withdrawal directly from our checking to ensure the balance is paid in full at every cycle.
For example – we setup one card to pay for the “function” of gas only.
The rest of the cards, 3 or 4 of them, just sat there without much activities due to the CASH habits.
By the time we achieved Financial Independence in our early 40’s, our FICO score was fluctuated between 815 to 825.
The primary factors that ultimately gave us the score were –
1. The automatic payment from our checking to the credit card ensured the balance always paid in full without any missing payments.
2. Ironically, we rarely paid attention to the FICO score because our lifestyle evolved only with CASH – the best strategy for the prevention of DEBT accumulation. Essentially, our old habit of using CASH paved the lifestyle where IT IS ALMOST IMPOSSIBLE FOR US TO LIVE BEYOND OUR MEANS!
Using CASH is the one of the best financial habit that I am very proud of my daughter picked up from us.
Unless you are in the business of USING OTHER PEOPLE MONEY TO MAKE A LIVING – use CASH to finance your life and the high FICO score will just be a small beneficial side effect.
Good luck!
800+ and definitely looking to refi our personal property in addition to some of our income properties. I’ve been seeing rates of 3.5% with no points and no origination on a 30-yr fixed, but haven’t shopped heavily yet.
Definitely do it. I am signing in 2 hours for 3.5% with the lender covering all the closing costs. Instant break even and will save about $1k a year. My score hovers around 760. I held off on getting credit cards for the past year.
Credit cards build credit.if payed off every month.
I locked in 3% fixed for 15 years with 0.061% points. The timing is pretty good now.
Almost 20% of people have a credit score of 800-850 ??!!
That is quite an amazing stat.
Shows how easy it is to obtain a high credit score.
Great article! Makes me want to go out and check rates. I have a 30 year at 3.75%, and thought that was pretty good. My credit score is 800+. Totally agree on improving credit score and down payment before buying a house. When I bought my 1st house in 1995 I needed 10% down before a bank would even talk to me. I also go pre-approved by the bank before even looking for the house. The 2008 housing market screwed up the fundamentals of buying a house.
Robert, you should DEFINITELY be able to lower your 3.75% fixed rate right now to ~3.25%. And if you go with an ARM, you should be able to get under 3%. There is no downside to checking online or with your local bank.
Folks should refinance into the duration that MATCHES the yield curve’s inversion. In other words, refinance to a 7-10 year ARM b/c the 7-10 year bond yields are at its lowest in relation to other duration.
Refinancing from 3.75% to 3.25% will incur costs, will it still be worth it? My banker said no, but…..
Obviously it depends on the cost and how long you plan to hold the mortgage after. If you can break even within 12 months and on the home for at least three years after, then it’s a win.
That’s not bad, I was told it’d take longer
Indian Mama, you have to do the math, Sam cannot tell you your break even point with the data you presented.
(Mortgage Value * (Old Rate – New Rate))/12 = Savings Per Month
Cost to Refinance / Savings per month = Months it takes to break even
~T~
As the owner of a mortgage bank I can say that typically speaking any credit score (middle FICO score between the 3 bureaus) is >740 you should receive top tier loan pricing.
The make-sense for refi is commonly thought to be 1.00% in rate, however, depends on the loan size and most importantly cost. The hard costs should be paid back with the new savings in a short amount of time, most <6 months on the deals we put together.
LOTS of appraisal waivers on regular conventional loans lately as well which cuts costs and takes the worry out of troublesome valuations.
Seeing what our underwriters must go through to get the job done alleviates any fear on my part personally for a 2009 repeat. That was a CREDIT anomaly, and this time around credit is still, as it should be, relatively difficult to obtain. Someone wants a half million $$ or a million, yes they SHOULD have a bit of a process to get it.. I think most would agree on that. And if you're viable, credit-worthy, income is good, you'll get it.
I think even lower rates are to come, but for now they're sitting pretty so if it makes sense take advantage. If they're a point lower next year, we'll have to re-evaluate once again. Lock in low rate mortgage debt, pay off all consumer debt, and let this play out.. IMO.
Currently in the refi process with Citi Bank. <70% LTV, 30 year Jumbo fixed 3.375 with depositing 200k with them in a high yield savings account just at closing then I can move the cash out. Paying 0 points, and about $2200 in closing costs total on a 830k loan.
800 credit score was key to getting better pricing. Also, shop around, brokers were hitting me at 3.75, Wells Fargo was a little less around 3.625%, and Citi killed them all. My buddy was able to get 3.25% with Citi on his 30 Jumbo with a bigger cash deposit. The big banks give you some big breaks with “relationship banking”.
Congrats!
Glad Citi took care of you because they bait-and-switched me even though I’ve been a client for 18 years and have a heavy amount of assets with them. They promised to match or beat any other offer, and they did neither. So instead of going with them, I cancelled 7 days before closing after a 2 month process. Love the pain of refinancing a mortgage. More to write about in the future! :)
Ultimately I’m doing a 7/1 ARM at 2.675% with almost all fees included. It’s a long story I’ll share in an upcoming post or two.
Related: 30-Year Fixed Or ARM? The Choice Is Clear
Great ARM rate! Funny you mention the bait and switch, I Bank with wells and have for 15+ years and that’s what I feel they did to me! I was promised something and then when we went to lock that same day, everything completely changed. Coming from sales, I don’t work that way.
Maybe it’s just the particular mortgage officer you get at each bank? I have been surprised how easy Citi has been to this point, just waiting to close, but underwriting was a breeze.
I wonder who else has had a similar bait and switch experience?
I have an 800+ score and am trying to refi. It’s been a slow process due to so much demand and not enough staffing bandwidth. So it’s taking a lot of patience.
I would have guessed around 700 as the average credit score needed for mortgages. So I’m surprised it’s 760 but that’s a good thing. Don’t want another housing crisis.
800+ here. Just completed a refi on a jumbo loan and was able to get 4.00% and a great appraisal which I was pretty happy with. Underwriting process was more drawn out than usual but all-in-all went ok.
Did you already sign at the 4%? I would look to refi that again, you should be able to beat that rate easy right now if your 800+ and have a good LTV. Shop around.
My Score is over 800. I got a 7 year ARM at 3.25% resetting in 2023. I want to refi to a fixed 15-year but want a super low rate like in the 2.5% range.
Do you think rates will drop to that level soon?
We’re looking to refinance, but we wait until September. I’m not exactly sure what my credit score is. Probably somewhere between 760 to 800. The criteria are very high to get the best rates. I’ll talk to some lenders. 800+ is high.
I’m glad to see that lenders are much smarter this go around and hopefully that will be enough to prevent another real estate bubble from popping as bad.
Is there a certain threshold in interest rate drop that makes a refinance worth it? Obviously you have to account for the fees of refinance but curious if you had a % reduction that would make you pull the trigger on another refinance.