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What is the required credit score for a home loan?

What is the required credit score for a home loan?

Want to know if you are ready to buy a house? It’s not enough to have an idea of how much savings you have in the bank. After all, even if most of us work hard enough, it can take years before we can save up for the kind of money that will allow us to pay for a house in full. So if you want a quicker way to move into your dream home, you can take on a mortgage.

A mortgage is a debt that turns your house into collateral if you cannot repay the loan. You pay for it in installment, over a period of 10 to 30 years, depending on the type of mortgage you can secure.

The amount of savings you have is just a minor factor used to determine your eligibility for a mortgage loan. You are borrowing money, so what really matters to many lenders is your reliability in making payments. This is why credit scores are important.

To qualify for a mortgage, there is a credit score required you need to consider. So, aside from checking your bank statements, you will want to take a look at your credit report.

In this article, we will talk about the minimum credit score requirements of different mortgage loans. By the time you finish reading, we hope to have informed you of the answers to the following questions:

  • What is a good credit score for a mortgage?
  • What credit score do you need to buy a house in 2021?
  • What kind of home loan can I get with a 650 credit score?

No matter where you are now in your life’s journey, there will always be room for improvement. Don’t worry if you find out that you have a long way to go! If you are improving your credit score, we hope our credit tips can give you a big boost later on.

Minimum Credit Score according to Loan Type

There are many types of mortgages. You can categorize them according to the kind of interest rate, loan term, and which ensures the mortgage loan.

Here, we will give a quick rundown of a few types of home loans according to how they are guaranteed.

Government-Backed Loans

FHA Loan

If the Federal Housing Administration insures your loan, what you have is called an FHA loan. This mortgage was created to keep an option available for people who have low to moderate incomes.

According to Experian, 99% of people have a FICO Score of at least 500. More often than not, first-time home buyers will have lower credit scores that block them out of many mortgage options. Through FHA loans, Americans can count on being eligible for a mortgage even with a credit score of just 500. With this kind of rating, you can be approved for an FHA loan as long as you can make a down payment of at least 10 percent. If you get a score of 580 at least, that 10% down payment can go as low as a 3.5% down payment.

VA Loan

If you have military experience and get a loan backed by the U.S. Department of Veterans Affairs, you get a VA loan.

Our service members are indeed fortunate to have this as a job benefit. As long as they can keep their credit scores above 640, they can enjoy a zero-down payment mortgage and lower interest rates.


If your house is located in a rural area defined by the U.S. Department of Agriculture and you get a loan insured by the same agency, you will be paying for a USDA loan.

For many reasons, this option is much better than most mortgages out there. Like VA loans, there are no down payments required for USDA loans, although you still need to pay for closing costs and other fees. The really great thing about it, though, is there are really no credit score requirements.

They will still need to look over your credit report and know your credit score, and though you might be asked for more information with a credit score below 640, your credit score is not a real hindrance in getting approved for this type of loan.

Conventional Loans

On the other side of the spectrum, there are loans that the government does not guarantee. The opposite of government-backed loans is called conventional loans.

If you’re buying a considerable property that you need to get a mortgage, you will most likely need to get a conventional loan. The limits for these loans are set by Fannie Mae and Freddie Mac and might allow you to afford more living space for your home, although the loan amount will still depend on your particular location.

The absolute minimum credit score needed to qualify for a conventional loan is 620, but you might find that more often than not, mortgage lenders will ask for a higher FICO Score. After all, according to FICO itself, any score below 670 is already a bad credit score.

Some people try to avoid conventional loans as much as possible because if you don’t have enough money to make a 20% down payment, you will need to pay for private mortgage insurance. However, this does fall off as soon as you gain 22% home equity.

How Credit Scores Affect Your Mortgage Options

It is important to remember that the mortgage industry is a business, and lenders need to make money. This is why interest is unavoidable, and lenders will go to lengths to lessen their own risk.

Even if you qualify for a loan because you meet the minimum credit score requirements, this is not the only effect of your FICO Score on your mortgage. Your credit score can also determine how much interest and down payment you’ll be paying to secure your home loan. This can perfectly be seen through our FHA loan example. If you have a credit score of 579 or below, you need to have at least 10% of the home’s purchase price ready to make a down payment. With a 580 score, you only need to pay a 3.5% down payment.

Your credit history can tell mortgage lenders a lot about your behavior when paying a debt. It’s not really about how good you are with money. It’s how good you are at keeping your promises. Essentially, a low credit score presents a lot of risk to the loan lender, so you have to pay a higher mortgage rate to protect their interest. Aside from a more expensive interest rate, you might need to show that you have a stable income and enough savings put away.

In the case of USDA loans, if you have a score below 640, you might be asked to explain the circumstances that affected your credit score. For example, since you don’t even have to make a down payment, you might be asked to prove that your income is steady enough that you’ll be able to repay the loan.

How to Improve Your Credit Score

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Now that you have a good idea of the weight of your credit score in your life when you want to buy a house, you are probably already reflecting on your chances of getting approved for a mortgage.

How fast you can increase your FICO Score will depend on how much credit history you already have. If your score is generally poor because you don’t have ample data yet in your report, you might actually be able to see it improve in just a short period of time. On the other hand, if you are already experienced with debt, the time you need to spend working on your credit will depend on how long ago your last missed payment or default was. Late or missed payments can take many points away from your credit score; needless to say, defaults are a bit harder to recover from. These are the factors that probably led to your low credit score.

To better your chances of securing the best mortgage for your needs, you have to do the following consistently:

  • Pay your bills on time since your credit score relies heavily on your payment history.
  • Live within your means so that you can avoid unnecessary debt.
  • Save as much money as you can because a higher down payment means less to pay in interest.
  • Know your score to keep track of your improvement. You can actually check your credit for free annually.

And that’s all for today! We hope we could take some of your worries away when it comes to credit scores and home loans. If you have more questions, you know how to reach us!

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