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Credit Score Needed to Get a Home Loan

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Our goal here at Credible is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.

The credit score you need for a home loan is probably lower than you think. Lenders use your credit score — and other indicators of your financial strengths and weaknesses — to decide what types of mortgage loans you can get and how much those loans will cost you.

But your credit score is just one of several factors that tell mortgage lenders if you can afford to borrow the amount you’re requesting and if you’re likely to repay it.

Here’s what you need to know about credits scores and home loans:

Minimum credit score needed by home loan type

There’s a different minimum credit score needed for each type of mortgage loan. Here’s a quick overview:

Loan typeMin. credit scoreDescription
Conventional620
  • Most common
  • Available from most lenders
  • Requires private mortgage insurance (PMI) with less than 20% down
FHA500
  • Can have lower credit scores, lower incomes, and/or higher debt
  • Federal government guarantee and borrower-paid mortgage insurance allow lenders to approve these higher-risk loans
VANone
  • Available to qualifying military service members, veterans, and some spouses
  • Federal government guarantee and borrower-paid funding fee protects lenders and helps those who serve our country
USDANone
  • Helps low- to moderate-income borrowers buy homes in rural areas
  • Government guarantee encourages lenders to offer these loans

Home loan options by credit score

If your credit score is too low, you might be disqualified from certain home loans. But there are many loan types that are forgiving of low credit scores. No matter your credit, here’s what types of mortgages you might be eligible for:

Bad credit score home loans

A bad credit score is usually one that’s lower than 640. While you might be able to get a home loan with bad credit, the potential drawbacks include:

  • Needing a larger down payment
  • Paying a higher interest rate
  • Spending more money on mortgage insurance premiums

Why would you spend more money on mortgage insurance? You would be paying FHA mortgage insurance premiums for the life of the loan instead of being able to drop them once you have 20% equity — or you might be paying a higher rate for PMI on a conventional loan until your equity reaches 20%.

With bad credit, you might be able to secure an FHA loan, a VA loan, a higher down payment conventional loan, or a USDA Loan:

  • FHA loan: Federal Housing Administration loans allow borrowers to have credit scores as low as 500, but you must put down at least 10% if your credit score is 500 to 579. Some FHA lenders only work with borrowers who have scores of at least 580.
  • VA loan: These loans have no minimum credit score requirement. However, VA loans are only available to qualifying military service members, veterans, and surviving spouses. Many VA lenders only work with borrowers who have scores of at least 620, and the average VA homebuyer in June had a 720 credit score according to Ellie Mae, a mortgage management software company.
  • Conventional loan: These home loans are available to borrowers with bad credit, but you’ll need a credit score of at least 620. Among all conventional home loan borrowers in June 2020, a mere 1% had a credit score lower than 650, according to Ellie Mae. So, depending on the lender, you might even need a higher score.
  • USDA loan: Rural mortgages through the USDA are for low- to moderate-income borrowers and have no minimum credit score. The home you want to buy must be in an area whose population is less than 35,000.

See: How Your Credit Score Impacts Mortgage Rates

Fair credit score home loans

With fair credit — a score of 640 to 699, typically — it becomes easier and less expensive to get a mortgage, but it can still be more difficult and more expensive than it would be if you had good or excellent credit.

If you can potentially get any type of mortgage with poor credit, then your chances only get better with fair credit, especially when it comes to two types of loans:

  • FHA loans: FHA loans are a popular choice for borrowers with fair credit. Nearly 60% of all FHA loans that closed in June 2020 went to borrowers with credit scores of 600 to 699, per Ellie Mae. With a credit score in this range, you’ll only need a down payment of 3.5% to get an FHA loan. But all FHA borrowers must pay an up-front mortgage insurance premium and monthly mortgage insurance premiums, which means you must be able to afford this additional cost.
  • Conventional loans: Once your credit score reaches 680, if you’re a low-income borrower, you might become eligible for a conventional loan with better pricing, even if you can only put down 3%. Mortgage lenders might require you to pay for PMI on any conventional loan with a down payment of less than 20%, but it could be less expensive than FHA mortgage insurance.

Good credit score home loans

Once your credit score climbs into the 700 to 749 range, you’re in the good credit score range for a home loan. Qualifying will usually be easier and loans will most likely be less expensive. All types of mortgages are available once you have good credit:

  • Conventional loan: A conventional mortgage becomes easier to get with good credit, even if you’re carrying a lot of debt relative to your income. Instead of needing a debt-to-income (DTI) ratio of 36% or less, you might get approved with a ratio as high as 45%. That means your existing monthly obligations (such as your student loan, car loan, credit card, child support, and alimony) and proposed mortgage payment must total no more than 45% of your gross income. If you’re putting down less than 20% on a conventional mortgage, a good credit score will reduce your PMI premiums.
  • Jumbo loan: If your income is high enough, jumbo loans become accessible with a credit score of 700 or higher.
  • FHA loan: These loans become less advantageous as your credit score increases because you’re more likely to qualify for a less expensive conventional loan.
  • VA loan: Veterans Administration loans are still a great option for those who qualify. The average VA borrower in June 2020 had a credit score of 733 if they were refinancing and 720 if they were buying, according to Ellie Mae.

Excellent credit score home loans

An excellent credit score of 750 and above is the best place to be when you’re shopping for a mortgage. It will help you get the lowest interest rate whether you want a conventional, USDA, VA, or FHA loan:

  • Conventional loan: With an excellent credit score, you’ll be able to get competitive bids from multiple lenders on a conventional loan. And, if you’re putting down less than 20%, an excellent credit score will help you get the most favorable PMI premiums.
  • USDA or VA loan: Qualifying borrowers with excellent credit might still choose a USDA or VA loan if they don’t have a down payment.
  • FHA loan: There’s little reason to get an FHA loan when you have excellent credit. You will probably qualify for a conventional loan and avoid paying the FHA’s mortgage insurance premiums. An exception might be if your DTI ratio, including your proposed mortgage payment, is 45% to 50% and you’ve been rejected by multiple lenders for a conventional loan.
Other factors your lender will consider for your mortgage rate:

  • Income: You’ll need a documented history showing two years of steady income in the same line of work.
  • Debt: Your debt cannot consume so much of your income that your mortgage and living expenses won’t be manageable.
  • Down payment: The higher your down payment, the less risky you are to lenders. The gold standard is 20% or more.

Find Out: How to Get the Best Mortgage Rates

What mortgage rate can I expect with my credit score?

In the table below, you can see how much your interest rate might be depending on your credit score, how much your monthly payment might be, and how much you’d likely pay in total interest.

This is based on a $200,000, 30-year loan and the interest rates as of Aug. 13, 2020.1

Credit scoreInterest rateMonthly paymentTotal interest paid
760-8502.577%$798$87,378
700-7592.799%$822$95,806
680-6992.976%$841$102,624
660-6793.19%$864$110,982
640-6593.62%$912$128,154
620-6394.166%$974$150,665
Note: All numbers here are for demonstrative purposes only and do not represent an advertisement for available terms.

Improving your credit score can get you a better rate and more

Improving your credit score for a home loan can benefit you in other ways besides lower mortgage rates. For example:

  1. With FHA loans: A better score can qualify you for a lower down payment — 3.5% instead of 10%.
  2. With fixed-rate conventional loans: If you have a credit score of 720 or higher and a down payment of 25% or more, you don’t need any cash reserves and your DTI ratio can be as high as 45%; but if your credit score is 620 to 639 and you have a down payment of 5% to 25%, you would need to have at least two months of cash reserves and a DTI ratio of 36% or less.

So, it’s always a good idea to improve your credit score if you can — to ensure you have the best options for a home loan.

Here are a few ways you can raise your score:

  1. Make on-time payments. Always pay all of your bills on time because on-time payments are a big part of what makes up your credit score.
  2. Pay down your debt. The lower your utilization percentage, the better. This tells lenders you’re being responsible and not maxing out all your credit cards and loans.
  3. Don’t open any new accounts if you don’t have to. Opening up a new account could bring your score down slightly because they cause hard credit inquiries. New accounts will also lower the average age of credit you have, so always keep this in mind when you open a new account.
  4. Don’t close any current credit card accounts. Keeping all of your credit card accounts open for more than just a period of time can help your credit score since it adds to the length of credit history.
  5. Clear up any errors on your credit report. Always check your credit score and report regularly to make sure there are no fraudulent accounts or mistakes.

Take the next step and get pre-approved

The only way to know for sure what kind of home loan you can get with your credit score is by getting a mortgage pre-approval. Once lenders take a detailed look at your finances and how much you want to borrow, you’ll have a much better idea of your strength as a potential homebuyer.

Credible Operations, Inc. makes getting an instant streamlined pre-approval letter easy. We let you adjust your down payment so that you can figure out how much home you can afford.

Ready to get pre-approved?

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

1Calculated using the MyFico loan savings calculator

About the author

Amy Fontinelle

Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

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Bad Credit

European Regulator Worries Banks Are Ignoring Borrower Troubles

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The European Central Bank is worried lenders in the eurozone aren’t properly evaluating the impact of the coronavirus pandemic on the financial health of borrowers, a problem that could result in a sudden cascade of defaults.

Andrea Enria,

head of banking supervision at the ECB, said banks are setting aside less money to cover for loan losses than peers in other countries, including the U.S. He added that the provisions are below levels reached during the financial crisis and short of the levels models suggest are required.

“The way in which banks are preparing for asset quality deterioration varies widely and could, in some cases, be insufficient,” Mr. Enria said Thursday.

He expects the impact of renewed lockdowns will be reflected in banks’ fourth-quarter results and through 2021. Several eurozone banks are due to report their annual results next week.

The true health of eurozone borrowers has become harder to track due to the amount of financial support from the ECB and the region’s governments, which includes payment holidays on existing loans. In Italy, for instance, over a quarter of loans to businesses are under payment moratoriums. In Portugal, half of the credit to companies in the hospitality and restaurant sectors are under the program.

State guarantees on loans have also incentivized eurozone banks to continue lending, including to small companies that would likely go bust without that help.

Mr. Enria said that while the support is likely helping banks to keep their loan books healthy, there are signs lenders aren’t properly looking at the personal situation of the borrowers who received support.

“Since March last year we told banks that they should develop additional indicators to try to understand the quality of their customers and to see through the moratoria,” Mr. Enria said. “We are not seeing a lot of that happening,” he said.

The ECB earlier last year said bad loans in the eurozone could soar as high as €1.4 trillion, equivalent to $1.7 trillion, if the economies were to contract more than expected, a scenario the central bank said was severe but plausible. That amount would be more than during the aftermath of the financial crisis more than a decade ago.

The ECB said the probability of that scenario is lower now, but “significant uncertainties remain in the short to medium term.”

Most banks were able to keep their capital levels stable through last year, although nine have taken advantage of looser regulatory requirements and ate into their buffers, the ECB said Thursday without naming the lenders.

The biggest concern for regulators is that low profitability—and a potential flood of losses from bad credit—could quickly deteriorate those capital levels.

Write to Patricia Kowsmann at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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How long do offers last, and what if I have bad credit? We answer the most-asked mortgage questions

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Forget the eyes – nowadays, it is our internet searches that provide a window into the soul.  

We often turn to search engines to ask the questions that are on our minds, whether we’re just looking for a quick answer or because it’s something we are embarrassed to ask in person. 

Now, Britons’ most common mortgage questions have been revealed, thanks to a new analysis of Google searches.  

Many of the mainstream lenders are able to offer a mortgage within 2-3 weeks of an application being submitted, according to the mortgage experts we spoke to

Many of the mainstream lenders are able to offer a mortgage within 2-3 weeks of an application being submitted, according to the mortgage experts we spoke to

Comparethemarket.com looked at search data from the last twelve months, and discovered that the most asked mortgage question, with 20,960 searches, was ‘How long does a mortgage application take?’

Britons also wanted to know how long a mortgage offer lasted for, how to get a mortgage with bad credit, what an interest only mortgage was, and what a lifetime mortgage was. 

Applying for a mortgage can sometimes be complicated, and there is often a lot of jargon to contend with – so it is not surprising that people search online for more information.

This is Money asked Mark Harris of mortgage broker SPF Private Clients, Nicholas Morrey of mortgage broker John Charcol and a spokesperson from the Mortgage Advice Bureau to help provide answers to the five most-asked questions.

How long does a mortgage application take?

The most common mortgage question on Google, this is particularly relevant at the moment given that some buyers are keen to complete before the stamp duty holiday ends on 31 March. 

But the answer depends on the type of mortgage application being submitted, according to Harris.

For example, a product transfer – where you stay with your current lender but move to a new deal – can take a matter of days, whilst a more complex mortgage application can take weeks.

‘Once the application is submitted, a lot depends on the lender and the complexity of the application – it may take anywhere between one day to two weeks for an initial assessment to take place,’  Harris said. 

If you’re self-employed or the mortgage valuation requires a surveyor to visit the property in person, then you are likely to face further delays. 

A firm mortgage offer will follow once your application has been fully reviewed and an acceptable valuation received.

The experts we spoke to said that typically, it would to take two to three weeks from application to offer – but the pandemic has meant that these timescales have been stretched. 

‘Unfortunately, during the Covid-19 pandemic, lenders have suffered from staff and resource issues and tasks are taking longer to complete,’ said Harris.

‘Also, given the effect on employment and income, lenders are scrutinising applications in greater depth to see how applicants have been affected.’ 

How long does a mortgage offer last?

In most cases mortgage offers last for six months, although some offers will only last for three months.

‘If the offer expires, lenders will sometimes agree to an extension – although this will sometimes require a re-assessment by the lender,’ said Morrey.

A typical mortgage offer will last for six months, but this can sometimes be extended

A typical mortgage offer will last for six months, but this can sometimes be extended

‘For example, the original deal may no longer be available, or a new valuation may be required, or the lender may wish to re-assess your income and outgoings.’

Where an application involves a new-build property, the offer may last longer – potentially up to 12 months, according to Harris.

‘Borrowers should be aware that some new builds have completion deadlines that may not coincide with offer expiry dates,’ he said.

How to get a mortgage with bad credit?

Some lenders will not offer mortgages to people with a history of bad credit, and this was something that Google searchers wanted to know how to get around. 

Lenders that are willing to do so often charge a higher interest rate, to reflect the increased level of risk.

‘When getting a mortgage with bad credit, you can expect to borrow less and to pay more in interest in comparison to someone who has an exemplary credit record,’ explained the spokesperson for the Mortgage Advice Bureau.

Having bad credit may mean you are not able to borrow as much on your mortgage

Having bad credit may mean you are not able to borrow as much on your mortgage

‘High street lenders are generally averse to dealing with those who have bad credit, which can make it pretty difficult.

‘When you apply for a mortgage, it can register on your credit file – and if you apply to a number of lenders to see if they will lend to you, it may be doing additional damage to your credit score.’

‘Your best option, according to Mortgage Advice Bureau, is to contact an established and experienced mortgage broker.

‘They will have access to contacts and deals that are exclusive and not available to the general public. The mortgage broker will carry out a ‘soft’ credit check first, so your inquiry doesn’t negatively impact your credit score.’ 

What is an interest-only mortgage?

Another common question on Google concerned interest-only mortgages. So what are they? 

When borrowing for a home, you can either opt for a repayment mortgage or an interest-only mortgage.

With a repayment mortgage, you will pay back a part of the loan, as well as the interest, each month until you eventually pay off the mortgage.

With an interest-only mortgage, you will only pay the interest each month, with the loan amount remaining the same.

‘It means your monthly payments will be lower but, at the end of the mortgage term, the full amount you borrow is still outstanding and you have to pay the lender back everything at that time,’ said Morrey.

‘When applying for an interest-only loan, the borrower must demonstrate that there is a clear and credible strategy in place to repay the capital,’ added Harris.

What is a lifetime mortgage?

A lifetime mortgage is a mortgage secured on your home, with the loan only being repaid when you pass away, go into long-term care or sell the property.

Two examples of this are retirement interest-only mortgages and equity release mortgages.

Equity release allows you to access some of the equity in your home via a lifetime mortgage

Equity release allows you to access some of the equity in your home via a lifetime mortgage

‘Lifetime mortgages often have fixed rates of interest, and in the case of equity release mortgages, the fixed rate is for life and not just two or five years,’ explained Morrey.

He added: ‘They should not be confused with lifetime tracker mortgages, which track a specific index such as the Bank of England base rate – these will likely have an end date and won’t be for a ‘lifetime’ in itself.’

There are strict lending criteria, with the amount you can you borrow depending on your age.

‘Seeking expert financial and legal advice is crucial for this type of mortgage,’ said Harris.

‘An adviser covering both equity release and standard mortgages would be most useful as they can assess the most suitable route forward.’

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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What is a Subprime Mortgage?

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What is a subprime mortgage? If you’re asking this question, chances are good you’re either trying to borrow for a home with poor credit or you’ve been offered a loan you’re concerned is a subprime loan. We’ll explain the answer to the question “what is a subprime mortgage?” and discuss some of the risks and alternatives.

What is a subprime mortgage?

Prime loans usually offer competitive interest rates to well-qualified borrowers. A subprime mortgage is similar to a conventional mortgage, except it has a higher interest rate. Subprime loans are geared toward borrowers with bad credit who can’t qualify for a prime mortgage at the best rates. Lenders take a bigger risk with subprime loans, so they charge substantially higher rates due to the borrower’s poor credit history.

If you have a credit score below 620, you may not be able to qualify for a prime mortgage, but you might get a subprime mortgage.

Types of subprime mortgages

There are multiple types of subprime mortgage loans. However, one particular type of loan — an adjustable-rate mortgage — is especially common for subprime mortgages.

Adjustable-rate mortgages

Many subprime mortgages are adjustable-rate mortgages, or ARMs. The introductory rate on an ARM is fixed for a limited time. For example, a 5/1 ARM provides a fixed rate for five years. After that, the rate adjusts based on a financial index.

That means your interest rate may go down — but it could go up, too. ARMs carry more risk than fixed rate loans. If interest rates rise, monthly payments could increase. If you take out an adjustable loan, find out how high your payment could go. Don’t assume you’ll always be able to refinance or sell your home before it adjusts.

Fixed-rate mortgages

With fixed-rate subprime mortgages, the interest rate remains the same for the entire repayment period. Since the rate doesn’t change, payments don’t change.

The important question is, what is a subprime mortgage interest rate you’d qualify for? You need to make sure the rate is reasonable and that monthly payments are affordable.

Shop and compare rates from multiple mortgage lenders for poor credit to find the best subprime loan rates. And use a mortgage calculator to see how much your monthly payment would be for any loan you’re considering.

Interest-only mortgages

Interest-only mortgages allow you to pay only interest for a limited time, such as the first five years. This makes monthly payments more affordable, but you don’t make progress in reducing your loan principal.

At the end of the initial period, you’ll begin paying both principal and interest. Your payments may rise substantially because you’ll have a shorter timeline to pay your loan off. If you took a 30-year mortgage and only paid interest for the first 10 years, you’d have just 20 years to pay off your entire principal balance.

Most interest-only loans are also structured as ARMs, so you take the added risk of rates going up and payments rising.

Dignity mortgages

Dignity mortgages are a specific type of subprime loan offered by some lenders. With this type of mortgage, you’ll initially have a high interest rate. But if you make on-time payments for a period of time, your interest rate will eventually be reduced to the prime rate.

Subprime mortgage risks

It’s important to also consider if you’re willing to take on the risk of this type of loan. Some of the biggest risks include:

  • Interest costs will be high: You will pay significantly more mortgage interest over time than if you took out a conventional mortgage.
  • Finding a lender may be difficult: Not all mortgage lenders offer loans to subprime borrowers. You could be limiting your potential loan options.
  • Payments could increase: If you choose an ARM, you face the risk of interest rates going up and payments rising.
  • Foreclosure is possible: If you don’t pay your subprime mortgage loan, your lender will foreclose. Your credit could be severely damaged.

Lenders are required under Dodd-Frank financial reform laws to conduct an “ability-to-repay” assessment. This ensures borrowers are capable of paying back their loans. These mandates can reduce the risk for borrowers. But the bottom line is buying a house with bad credit can create a host of complications.

Alternatives to subprime mortgages

You may be wondering if there are other options. The good news is that there are multiple solutions for borrowers with bad credit. Some of the best options include these government-back loans:

  • FHA loan: FHA lenders often work with borrowers with lower credit. FHA loans are available to borrowers with credit as low as 500 as long as they make a 10% down payment. Borrowers with scores of 580 or higher can get approved with a 3.5% down payment.
  • VA loan: A VA mortgage loan is available to eligible service members and veterans regardless of their poor credit history. The VA doesn’t set a minimum score, but some lenders do.

USDA loan: These allow you to purchase eligible homes in rural areas. More stringent underwriting is required to qualify borrowers with credit scores below 640. But it may still be possible to qualify.

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