Getting a mortgage is a bit easier now that lenders are beginning to loosen borrowing standards that excluded many buyers in the throes of the pandemic. But easier doesn’t mean easy, and you will still need the best possible credit score to avoid additional scrutiny from your lender.
A conventional mortgage typically calls for a minimum credit score of 620, but you may be able to get some government-backed loans with a score as low as 500.
Generally, the higher the credit score, the better the interest rate. Still, lenders can impose their own credit requirements, which means your credit score must be in good shape before you buy.
[Read: Best Mortgage Lenders.]
What’s the Minimum Credit Score for a Mortgage?
The minimum credit score for a mortgage depends on the type of loan — conventional or government backed — and the lender. You won’t find a universal credit score for mortgages.
“While it ultimately depends on the loan, the minimum credit score for a mortgage typically ranges anywhere from 580 to 620,” says Gina McKague, founder of McKague Financial. “Different types of loans require different minimum credit scores.”
You can choose between conventional or government-backed loans, which are insured by the Department of Agriculture, the Department of Veterans Affairs or the Federal Housing Administration. The government guarantee protects the lender if you default on your mortgage, which means you could qualify for a government-backed loan more easily than a conventional loan.
If you’re in the market for a mortgage, this table shows the minimum credit score requirements for FHA, VA, USDA and conventional loans.
Minimum FICO Credit Score
580 with a 3.5% down payment; 500 with 10% down
Low- to moderate-income homebuyers
No set minimum; most lenders require at least a 620 credit score, but some will allow a score as low as 580
Veterans buying homes
No set minimum, but a score of at least 640 is recommended
Qualified buyers purchasing homes in designated rural areas
620 to 640
Buyers seeking traditional mortgages
If you want a jumbo mortgage, which exceeds the government’s lending limits for mortgages backed by Freddie Mac and Fannie Mae, lenders will expect a credit score of at least 680. In most states, a jumbo loan is a mortgage that’s more than $548,250.
Many lenders require FICO scores of at least 700 for jumbo loans on single-unit properties, but VA borrowers can obtain them with credit scores of at least 640.
[Read: Best FHA Loans.]
Can You Qualify for a Mortgage With a Bad Credit Score?
A bad credit score won’t be a roadblock to approval, but it often means paying more than if you had good credit.
Generally, lenders view a credit score as a leading indicator of the borrower’s likelihood to repay a loan, says Glenn Brunker, president of Ally Home, a division of Ally Bank.
The lender, “as a result, will ask a borrower with a lower credit score to pay a higher rate, all else being equal,” Brunker says.
Even a small difference in your interest rate can add up to thousands of dollars over time. A 30-year $250,000 loan at 4% interest results in paying $179,674 in total interest; a quarter of a percentage point more costs an extra $13,072 in total interest.
The higher interest rate also translates to a higher monthly payment: You’d pay $1,194 at 4% and $1,230 at 4.25%.
What Other Factors Do Mortgage Lenders Consider?
A good credit score alone will not make you a lock for a home loan. Yes, lenders consider credit when you apply for a mortgage but also take into account your:
— Employment history and income.
— Down payment.
— Tax returns for the last two years.
— Savings and investment accounts.
— Profit and loss, if you own a business.
— Debt-to-income ratio, a measurement of how much of your income goes toward paying off debt each month.
— Negative credit history, including delinquencies, charge-offs or bankruptcies.
[Read: Best Mortgage Refinance Lenders.]
How Can You Raise Your Credit Score to Buy a House?
If you’re worried that your credit score could affect your mortgage eligibility and interest rate, you can try to raise your score. Start by pulling your credit report from AnnualCreditReport.com.
“Ensure there are no credit reporting mistakes on your credit report,” McKague says. “If there are mistakes, make sure to reach out to the credit companies and fix any errors.”
Next, take these steps to improve your credit score before you apply for a home loan:
— Limit any applications for new credit to a three- to six-month window before you buy because hard credit inquiries can knock a few points off your score.
— Pay your bills on time, and use issuer or calendar alerts to keep track of payment due dates. Payment history accounts for 35% of your FICO score and is the biggest factor that influences it.
— Pay down credit card balances if you’re carrying debt. Using too much of your available credit or carrying a balance can indicate that you are overextended and hurt your credit score.
— Keep older accounts open to demonstrate a strong credit history and to help your credit utilization ratio. Closing a card reduces your available credit, which can increase this ratio, an important factor in your credit score.
— Expect to write letters of explanation for negative items on your credit reports.
Allow as much time as possible to work on improving your credit score: ideally, six months to a year before you start shopping for a loan.
“Don’t wait until the last minute, when you might end up losing that dream house, a house you’ve already moved into mentally,” Brunker says.
When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.
However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.
What is Sallie Mae?
Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.
In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.
However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.
In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).
At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.
What is the difference between private and federal student loans?
With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.
On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.
Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.
As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.
Are Sallie Mae loans better than federal student loans?
In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.
However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.
If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.
With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.
The bottom line
Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.
Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.
PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have.
1. Analyze Your Finances Quarterly or Biannually
You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.
With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.
The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.
4. Savings and Retirement Accounts
The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.
A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies.
Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan.
Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito.