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What credit score should you have for a mortgage?

Debt to Income Ratios for Mortgages

Minimum Credit Score for a Mortgage

Get Approved for a Mortgage

When you apply for a mortgage, your credit score is one of the fundamental factors a lender will consider before making you an offer. For new and first-time homebuyers, it can be unsettling to learn that the future of your homeownership relies heavily on your past credit history.

What is the minimum score accepted by lenders? How will my credit score affect my loan interest rate?

Keep reading for a better sense of the role your credit score plays in applying for a mortgage.

Minimum Score Requirements

When you apply for a home loan, one thing is clear: There are a lot of mortgage types to choose from. Here are the minimum credit requirements for most major programs.

Type of Home Loan Minimum Credit Score
VA No minimum (comprehensive profile review)
FHA 500
USDA 580
Conventional 620

Depending on how severe your credit actually is, a score of 580 may be enough to buy a house. Credit scores between 580 and 620 are generally considered poor but could be enough for a lender to consider your approval for a mortgage.

Getting the Best Interest Rates

While different types of mortgages and various lenders are going to have individual credit score requirements, it’s important to understand that merely having a good enough score to get approved for a home loan doesn’t mean you’re going to be offered a great deal.

Your credit score has the greatest impact on the types of interest rates you are offered. Poor credit scores may often lead to high loan rates, raised closing costs, and higher monthly payment. Typically, the higher your credit score, the lower these numbers will be.

While it is up to your bank or lending agency to determine what type of score a borrower needs to gain access to their lowest interest rates, a variation of a few points can affect your monthly payment by as much as hundreds of dollars.

For example, a $200,000 30-year loan at a 4% interest rate (foregoing other fees) would translate to a monthly payment around $950. However, take out the same loan at an interest rate of 5%, and your monthly payments will rise to just below $1,075. Raise the same loan to 8%, and you are looking to pay almost $1,500 every month.

Looking at More than Just Your Credit Score

It’s no secret that your credit score is a big deal when it comes to getting approved for a mortgage, but buyers with a less than perfect credit history are not out of luck entirely.

When considering your application for approval, lenders will look at more than just your credit score. Being able to show re-established credit, that there was a specific economic event that caused the lapse in excellent credit, and that you have since recovered from this financial hardship can be the difference between an approval and denial.

Lenders will also take a close look into your debt. Having little to no current debt is a healthy compensating factor for less than favorable credit. Compensating factors are elements that lenders consider to reduce the borrower’s risk, allowing for the approval or low and poor credit scores.

Mortgage agencies will want to see a solid and recent payment history with no collection accounts and late payments within the past 12-months, a low debt-to-income ratio, and a consistent and reliable employment history.

Compensating Factors for Poor Credit:

  • Down payment of 10%+
  • Significant money in savings
  • High Income and long employment history with current employer
  • Low debt-to-income ratio
  • Positive credit history of 12+ months

Need help getting approved for a mortgage? We can help! Call 480-478-4304 for a free consultation.

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