What credit score do I need to get a mortgage?

As you probably already know, your credit score is an integral piece of your overall financial picture. Your credit score has the power to help you get more credit, get approved for a lease, and when you’re ready, buy a home. But what constitutes a ‘good’ credit score? And just how good does your credit really need to be in order to get approved for a mortgage?

Whether you’re thinking of buying a home or refinancing your existing mortgage, your credit score will inevitably come into play. Knowing what to expect in the way of acceptable credit scores can help you be better prepared for the application and pre-approval process. Therefore, let’s dive in and find out what type of credit score is needed to secure a home loan.

What is the minimum credit score to get a mortgage?

Unfortunately, there’s no one, simple answer. Because there are so many different types of mortgage programs out there, credit score requirements can vary from one home loan to the next. Be that as it may, the general rule of thumb is the lower your credit score, the higher your interest rate, so it’s always in your best interest to work on building up your credit score before you begin the mortgage application process.

Also, you can do some due diligence and research different mortgage programs to find out their specific credit score requirements. For example, those applying for an FHA loan are required to have a minimum FICO score of 580 to qualify for the low down payment feature, which, at the time of this writing, is 3.5%. However, even with a score below 580, you may still be able to qualify for an FHA loan.

According to the latest information, FHA loan applicants can have a score as low as 500 and still have the chance to qualify. However – and this is a big ‘however’ – many lenders or individual banks will require higher-than-the-minimum credit scores to give themselves some added protection against the possibility of loss.

Conventional Home Loans

For conventional home financing (mortgages that are not backed by the government), credit requirements are a little more restrictive. The exact credit requirements may vary from lender to lender, but most conventional mortgage programs will require a score somewhere between 620-640. Any credit score below 620 is considered subprime, at least when it comes to conventional loan standards. Having a subprime credit score may not stop you from getting a loan, but it could mean you’ll only qualify for a subprime (higher) interest rate.

Unless you’re in a big hurry to buy a home, it’s usually best to postpone your purchase and work on building up your credit instead of having to pay higher interest.

Jumbo Loans, Vacation Home Loans, Investment Property Loans, Etc.

For more expensive loans like jumbo mortgages or mortgages for vacation homes, an even higher credit score may be required, or a higher down payment, or perhaps both. Again, these guidelines can vary among different lending institutions.

For a full list and more details of the above loans offered at Luxury Mortgage, visit our products page.

How Do Lenders Use My Credit?

When lenders run your credit, they look at your credit score from three different credit bureaus. Since each bureau reports consumer credit a little differently, each of the three score may be different. In most cases, the lender will use the ‘mid-score’ to determine if you qualify for a loan. For example, let’s say your three credit scores are 680, 720 and 740. In this example, the lender would most likely use the 720 score.

Your lender will then take that 720 score and evaluate it based on the amount of money and type of loan for which you are applying. Of course, your lender will use several other things to determine if you qualify for a loan, including your debt-to-income (DTI) ratio, employment history, additional assets, and so on.

What If I Have a Co-Borrower?

If there is a co-borrower involved in your mortgage application, then the lender will most likely take the lowest mid-score of both borrowers. Using the previous example, if the co-borrower has scores of 690, 725, and 740, the 720 score would be used since it is lower than the primary borrower’s mid-score.

Quick Tips

Keeping in mind that not all loan programs and lenders will have the same credit requirements, here is a brief list of quick tips for gauging your creditworthiness:

• Shoot for a score of 760+ to get the best pricing on mortgage rates.
• Remember to look at your entire credit report (not just the score) to catch any errors that might be present.
• Any mistakes on your credit report can be fixed, but it will likely take months. Therefore, start researching your own credit the minute you think you might want to get a mortgage.
• Don’t do anything to significantly alter your credit just before, during, or just after applying for a mortgage! No opening new lines of credit, no closing credit accounts.

Discuss these points with one of Luxury Mortgage’s home loan professionals or click here for a quote.