What's the Minimum Credit Score for a Mortgage?
Anyone shopping for a mortgage knows that their credit score matters. Not only do different mortgage programs have minimum credit score requirements, but lenders often have even stricter ones. There are also differences between purchase and refinance mortgage loans.
Just to give you some perspective, check out average credit scores for mortgage loans based on Ellie Mae's Monthly Origination Report.
Here are the average credit scores by loan type for January 2018:
There is no simple answer to the minimum credit score for a mortgage question because the minimum credit score depends on the loan program you apply for and the individual lender’s own guidelines and rules. They also depend on other qualifying factors such as your Loan to Value ratio (LTV) and Debt-to-Income ratio (DTI).
Minimum Credit Scores by Loan Programs
The three most important criteria lenders consider when you apply for a mortgage are your credit score (and credit history), amount of equity or down payment as measured by your loan to value ratio (LTV), and your income and debt situation as measured by your debt to income ratio (DTI).
Most mortgages are backed by a government backed or sponsored mortgage loan program. The most popular types of loans are conventional loans (Fannie Mae and Freddie Mac), FHA loans, VA loans, and Rural loans. Here are some general guidelines for the various mortgage minimum credit score:
Conventional Loans (Fannie Mae and Freddie Mac) Minimum Credit Score: The minimum credit score required for most loans is 620. This is true for all automated mortgage loans (purchase or refinance as well as fixed and Adjustable Rate Mortgage). However, manually underwritten loans have stricter requirements for many loans. Those requirements are based on a combination of LTV, DTI, type of residence and number of units. The minimum credit score ranges from 620 to 720. For a full list refer to the Fannie Mae Eligibility Matrix.
FHA Mortgage Minimum Credit Score: FHA loans have lower minimum credit score for their mortgage program. For most of their loans the minimum credit score is based on the LTV. For LTVs less than or equal to 90% the minimum credit score is 500. For those purchasing a home or refinancing a mortgage with a LTV over 90% (up to 96.5%) the FHA minimum credit score is 580.
VA Mortgage Minimum Credit Score: VA mortgage loans are for a select group of people. The VA does not originate loans, rather provides a guarantee for a certain sum of the loan. In order to receive a VA loan one needs to have a VA eligibility certificate. According to the VA government site:
"No minimum credit score requirement; instead VA requires a lender to review the entire loan profile to make a lending decision.
The VA publishes a handbook with details regarding how a lender must evaluate a credit report. In general lenders will require a credit score of at least 620. According to the Ellie Mae November 2017 origination insight report the average FICO score for a VA purchase loan was 709 and a VA refinance loan was 700.
USDA Rural Loan Minimum Credit Requirements: The USDA Rural loan program is available in certain areas. The loans are restricted to certain areas and borrowers must meet income eligibility requirements. There is no set minimum credit score for automated loans, but lenders must review credit reports and make sure that the "borrowers demonstrate the willingness to meet credit obligations in a timely manner." If the loan is manually underwritten, then in addition to the detailed review a USD rural single-family mortgage needs a validated credit score of 640".
Jumbo Loans and Minimum Credit Requirements: If you loan size is larger than those allowed for in the popular Government backed loans, then shop around for a jumbo loan. These are particularly popular in high cost areas. There are no program requirements, rather each lender sets their own guidelines. Expect many of the lenders to have higher credit requirements as well as stricter LTV and DTI requirements.
Non-Qualified Mortgage and Minimum Credit Requirements: Since the inception of the Qualified Mortgage and Ability to Repay Rules, many private lenders are reluctant to give out mortgages that don’t fit those programs rules. However, there are some niche lenders that do have less strict credit requirements, although they may require some kind of compensating factors such as larger savings or lower LTV.
Minimum Credit Score and Tips to Qualify for a Mortgage
Learning about your credit score is an important step in the mortgage qualification process. Although you will need a minimum credit score to qualify for a loan, it is not the only criteria. Read the bills.com article about qualifying for a mortgage home loan and learn about two other areas the lender looks at:
- Debt to income ratio (DTI): controlling your overall debts will help you qualify for a mortgage loan and make your payments more affordable.
- Loan to value ratio (LTV): by saving money and having at least a 20% down-payment, you will be able to avoid mortgage insurance. in general, you will be able to qualify for a mortgage with a lower credit score.
You will find that different lenders have different criteria. shop around with different lenders. not only will their mortgage rates and mortgage fees differ, but you may qualify with one lender and not another lender. If you are having trouble qualifying for a mortgage because your credit score is too low, or your credit history has some negative marks, then take these steps:
- Find out the reason your application was denied.
- Take out our credit report Dispute any incorrect negative actions.
- Create a budget and make your payments on time.
- Deal with debt problems. Check out the Debt Navigator to find a personalized debt relief solution. Improve Your Credit Score.
- Shop again when your situation improves.