What Is the Minimum Credit Score for a Home Loan?

Ready to buy a home? Whether you’ve already found your dream home or you’re just starting the process, one thing’s for sure—you’ll probably need a home loan. But before you start looking into mortgages, you might need to give your credit score a little evaluation. You need a decent score to get a decent mortgage, but what’s the minimum credit score for a home loan?

The short answer? It depends on a lot of things. If you’re ready to start looking for home loans, but aren’t sure if your score is up to par, we’re to help. Keep reading to learn if your credit score is mortgage-ready.

A Quick Look at Minimum Credit Scores for Mortgages

• Conventional private mortgage loans typically require a score of 640 or higher.
• USDA mortgage programs have some flexibility, but lenders do look for a valid score of 640 or higher in many cases.
• VA loans don’t come with a minimum credit score requirement. Lenders are required to review the entire credit profile for an applicant to make a determination on approval.
• FHA loans require a credit score of at least 500 for partial funding and 580 for full funding.

Mortgages are complex forms of financing, so a lot of factors come into play when you’re applying. Find out more about the minimum credit requirements for these types of loans—and why your credit score even matters—below.

Why Does Your Credit Score Matter for a Mortgage Loan?

Your credit history tells a financial story about you. It lets mortgage lenders better understand whether you’re reliable, how likely you are to pay off your debt and whether your debt-to-income ratio is low enough to allow you to cover your current debt obligations in addition to a new mortgage payment.

If you have bad credit, you may look like a risky investment to potential lenders and you’ll be less likely to get the approval. Or, if you do get approved, you may be required to pay higher interest rates than individuals with a better credit score might pay.

Luckily, you can still get approved for a home loan even with a lower-than-average score. That’s because your credit score is critical, but it’s not the only factor lenders consider. Plus, different types of loans come with different requirements, so you don’t always need a good credit score to qualify.

What Credit Score Do You Need to Get a Mortgage?

As stated above, the required credit score really depends on what type of loan you’re looking at. Let’s break it down a bit, defining these types of loans, so you can understand more about mortgages and some of your options.

Credit Requirements for Conventional Mortgage Loans

Conventional mortgage loans are not backed by a government entity. They’re offered via private lenders, including banks and mortgage companies. Typically, you need good credit to qualify for a conventional mortgage. For this purpose, that’s considered to be 640 or higher.

However, if you fall slightly short of that mark, you might still be able to find a lender if your payment history, debt-to-income ratio and other factors are positive. Ultimately, lenders need to know that you’re likely to pay your mortgage as agreed and that you also have the resources to do so.

Credit Requirements for Government-Backed Mortgage Loans

Credit requirements for government-backed loans get a bit more complex. Since these loans are all or partially backed by federal government agencies, lenders may approve you even if you don’t have good credit. However, that doesn’t mean everyone gets approved. Here are some basics about eligibility and minimum credit score requirements for various government-backed mortgage types.

Credit Score Requirements for USDA Loans

These loans are partially backed by the federal government and are available to individuals buying qualifying suburban or rural homes. USDA loan lenders must conduct a thorough review of an applicant’s credit profile. Here are just some of the rules they must apply:

• If three credit scores are present, they take the middle one. If two credit scores are present, they take the lowest one. If only one or no credit score is present, the lender must do a credit analysis and obtain alternate credit verification.
• The credit score must be based on at least two trade lines (open accounts) that were active at least 12 of the past 24 months. In short, if you don’t have much credit or you haven’t dealt in credit for years, you may have a challenge getting approved.
• There must be no significant delinquencies or collection accounts.

Credit Score Requirements for VA Loans

VA loans are available to eligible veterans and their families and are backed by the Department of Veterans Affairs. They don’t require a down payment or private mortgage insurance. The VA does not establish minimum credit score requirements and requires lenders to conduct a comprehensive credit analysis.

VA loans don’t have maximum debt ratios, but the lender has to provide compensating factors that prove they can pay the mortgage if their debt-to-income ratio is more than 41%. Veterans who borrow without a down payment may be limited to mortgages of $453,100 or less.

Credit Score Requirements for FHA Loans

FHA loans are backed by the Federal Housing Administration and are seen as a lower risk by lenders because they’re government-backed loans. This option is a common choice for anyone who qualifies as a first-time home buyer because of its relatively low minimum credit score requirements.

Credit score requirements for FHA loans are:

• 580 or higher for maximum financing—this means you wouldn’t need a down payment or could have a very small down payment, depending on other factors.
• 500 or higher for partial financing—this means you’d need at least some down payment orwould need to buy a house for less than it was worth.

You can’t get approved for an FHA loan with a credit score less than 500. Other factors do impact approval, such as your payment history, income and debt level.

Do You Need Good Credit to Refinance Your Mortgage?

A refinance is still a mortgage, so yes, you typically need good credit to get approved for one. Many of the minimum credit scores for home loans above apply to refi loans too. One benefit you get when refinancing is that you may owe less than your house is worth. That could reduce the need for down payments and even help you access better interest rates because the lender has less risk in making the loan.

Has COVID-19 Impacted Mortgage Credit Requirements?

Yes, COVID-19 has impacted minimum credit scores for mortgages. These changes are typically made by each bank. In the early months of the pandemic, uncertainty led many banks to drastically reduce home loans or even put them on hold. For example, in April 2020, JPMorgan Chase changed credit requirements to at least a 700 credit score with a 20% down payment.

However, falling interest rates and improved economic factors caused many banks to loosen requirements in the later months of the pandemic and into 2021. Ultimately, you’ll need to do your research when you’re ready to apply for a mortgage loan to find out what options you might qualify for.

What You Can Do Now

First, check your credit score. You might consider signing up for ExtraCredit. You’ll get access to 28 of your FICO scores—and you’ll see the credit scores that mortgage lenders see. ExtraCredit also has features such as Build It to help you positively impact your credit score if you need to boost it before applying for a mortgage.

Once you have a credit score that’s above 640—or, even more optimally, above 700—you can start shopping for mortgage loans and good rates. And remember that if you do get approved, your credit score also impacts your interest rates. Always ensure you know what your mortgage is going to cost you each month and over the life of the loan.

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