Wondering what the lowest credit score you need for a mortgage?
There are several home loan programs, each having a different minimum required credit score.
In this article you will find the lowest score you need for each program and how to find lenders offering loans to buyers with the minimum scores.
We also have some great tips on improving your credit score in 30 days if you need to boost your score to meet the minimum qualifying credit score.
You don’t need a 620 credit score to get approved for a mortgage anymore!
There are many different types of mortgage programs that all have their own score score requirements. The Federal Housing Administration allows borrowers to have a 500 credit score to qualify with a 10% downpayment.
The Veterans Administration has no credit score restrictions for VA Loans. However, lenders set their own credit score qualifications. Here are the typical qualifying credit score for different mortgage types.
Typical minimum credit scores required by lenders for each loan type
- FHA Loans – 580 Credit Score
- USDA Loans – 640 Credit Score
- 203k Loans – 620 Credit Score
- Convention Loans – 620 Credit Score
- Jumbo Loans – 700 Credit Score
- FHA Streamline Refinance – No Credit Check
- VA Streamline Refinance – No Credit Check
- Cash-out Refinance – 640 Credit Score
- HARP – 620 Credit Score (Some lenders do not have a minimum credit score)
- Home Equity Loan or Line of Credit HELOC – 680 Credit Score
FHA mortgages are without question the best type of loan for people with bad credit. It’s possible to get an FHA loan with a credit score of between 500 and 579 with a 10% downpayment, but the requirements are more stringent.
If your credit score is below 580, it’s recommended that you take some time repairing your credit before applying. For borrowers with a 580 credit score, you could qualify for an FHA loan with just 3.5% down.
- 500-579 credit score = 10% downpayment
- 580+ credit score = 3.5% downpayment
First time home buyers
First-time home buyers have lower credit scores than the typical home buyer on average. This makes FHA loans a great option for first time buyers. USDA loans and VA loans are also a very attractive option for any homebuyer.
First-time Home Buyer Grants
The U.S. Department of Urban Housing (HUD) has many different first time home buyer grants and downpayment assistance available. Search for available programs in your state on the HUD website. You can also check your local county Government website to check if the have any programs available for home buyers.
The Veterans Administration does not do not have a minimum credit score requirement. Although, many lenders need a 620 credit score for a mortgage approval. Some bad credit mortgage lenders can accept a 580 credit score. VA loans are a great way for Veterans to get a mortgage with NO downpayment and avoid paying mortgage insurance.
USDA Loans are for people who live in rural areas that are in eligible USDA zones. The US Department of Agriculture does not require a down payment to qualify. Another great benefit to USDA loans is that mortgage insurance premiums are $100 less a month on average when compared to FHA MIP. USDA Loans require a credit score of at least 640. Because USDA mortgages offer 100% financing, most lenders are not flexible with this requirement.
203k loans are great for people who want to buy a home that needs repairs. A standard 203k loan will allow you to purchase a home, and get cash to make major repairs, such as foundation or plumbing system repairs. A streamline 203k loan is for homes that need minor repairs, such a cosmetic upgrades. They require a downpayment of just 3.5% and a minimum credit score of 620 is needed.
Conventional loans are not guaranteed by the federal government, they are offered by private banks and lenders. Because of this the lender is taking on more risk, meaning the requirements to qualify for a conventional loan are higher than FHA loans.
The minimum score you need for a conventional loan is usually 620, other lenders will require higher scores. The downpayment on a conventional loan is between 5% and 20% depending on the size of the loan and your credit score. You are required to pay PMI on a conventional loan only if you do not put at least 20% down.
Your Credit Score affects your downpayment
The FHA has strict rules about how much down payment is required to buy a home through their program. If you have a credit score of 580 or above, you may qualify to make a down payment of only 3.5% of the total purchase price. However, if you have a credit score between 500 and 579, you will need to put down at least 10%.
If your credit score is below 580, it’s highly recommend that you work on improving your credit score before applying. For scores under a 580 wholesale lenders are the only ones that will handle your loan, but there are numerous documents and paperwork required in order to close, if you can even close at all.
Tips to Improve your credit score before you applying for a mortgage
Pay off your credit card balances
Credit utilization ratio is the balance of a card compared to the credit limit. If yu have a card with a $1,000 credit limit and the balance is $500, you have a credit utilization ratio of 50%. Try to pay down your balances below 15%, this will ensure your credit scores are the highest they can be before you apply with a mortgage lender.
Become an authorized user
Banks allow you to add someone to your account to be an authorized user. If you are added as one on an account with good payment history, they entire account will appear on your credit report, usually within 45 days. FICO does count authorized user accounts when factoring your credit score. This is a simple way to add 20-30 points to your credit score quickly.
Finding Lenders that Help Low Credit Score Home Buyers
Since lenders do not have to go by the FHA minimum credit score requirements, not all lenders will be willing to accept less than a 620 score for FHA Loans. Yet, there are mortgage lenders who will work with applicants with credit scores of 580. Finding the right lender can take time, so getting help can make it easier for you to move quickly into home ownership.