Home Loans Available by Credit Score

There are many factors that contribute to whether or not you’ll qualify for a home loan. However, one of the most important factors is your credit score. Even a single point can make a huge difference on whether or not you’ll qualify. Because your credit score is a number, it’s been an effective way to create minimum requirements for qualification.

Even though there are some industry standards around minimum credit scores, the final numbers required can be determined by each individual lender. You should use the numbers below as a guide to understanding the loan types that could be available to you given your current score. Let’s take a look at the loan types available by credit score.

500 Credit Score

FHA requires that a borrower have a minimum credit score of 500 for an FHA mortgage. However, many individual lenders still consider this a risky borrower, so it can be difficult to find a lender who will give you a home loan with a 500 credit score. Additionally, your total debt payments cannot exceed 43 percent of your gross monthly income (a ratio known as your debt-to-income ratio).

580 Credit Score

If you have a 580 credit score, you not only qualify for an FHA loan, you can also qualify for a higher debt-to-income ratio of 47 percent. In order to qualify for the higher DTI ratio, you must have at least one compensating factor. Compensating factors include things such as:

  • Cash reserves
  • New mortgage payment isn’t more than $100 or 5% of your previous rent/mortgage payment
  • Residual income

Additionally, if you have at least two compensating factors, you could have a DTI ratio of up to 50 percent.

620 Credit Score

For most lenders, a 620 credit score is the minimum magic number to qualify for a conventional loan. This is the minimum credit score required by Fannie Mae and Freddie Mac. Since many lenders sell their loans to these organizations on the secondary market, they must also follow this minimum score requirement. Also, keep in mind you can only borrow 75 percent of the home’s value with a 620 credit score, and your maximum debt-to-income ratio is 36 percent.

A VA loan is a great option for active or veteran military members. While the Department of Veterans Affairs (VA) doesn’t have a minimum requirement for VA loans, most individual lenders require a minimum credit score of 620 to qualify.

640 Credit Score

A 640 credit score used to be the minimum for conventional loans. This year (2014) the number reduced to 620. However, a 640 is still the minimum credit score required by Fannie Mae and Freddie Mac on Adjustable Rate Mortgages (ARMs). Just like for fixed-rate conventional loans, you can only borrow up to 75 percent of a home’s value and your maximum debt-to-income ratio is 36 percent.

680 Credit Score

If you’re looking to borrow more than 75 percent of your home’s value with a conventional loan, you’ll need a credit score of at least 680. This will also restrict your maximum debt-to-income ratio at 36 percent.

700 Credit Score

Often considered the magic number, a 700 credit score is the minimum score required to qualify for any conventional loan. With a 700 credit score, you can borrow greater than 75 percent of your home’s value and can have a maximum debt-to-income ratio of up to 45 percent.

For many lenders, a 700 credit score is also the minimum required score to qualify for a jumbo loan—a loan type for home loans greater than $417,000.

A credit score of 700 or better may also qualify you for lower interest rates on other loan types previously mentioned, like an FHA or VA loan.

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