If you’ve begun your home-hunting journey, you have probably been made aware of the criteria that will be needed to qualify for a mortgage. Items such as your debt-to-income ratio, employment verification, and, of course, your credit score are at the top of the list for qualification items. But with so many different types of mortgages on the market, it’s important to understand where your credit score lies on the scale and what the minimum is for each program.
What Determines a Minimum Credit Score?
A minimum credit score is not always set in stone. While some loan programs have a magic number, some don’t. Market conditions can also influence credit score requirements. For example, when the COVID-19 pandemic emerged, there was a spike in unemployment rates. That increase caused loan guidelines to tighten due to the risk associated with lending funds during uncertain times.
What If My Credit Score Is Lower Than The Minimum?
It’s important to understand that loan approval does not rely solely on credit score. While credit score is important, debt-to-income ratio, assets, down payment amount, specific loan guidelines, and other factors will determine if you can qualify for a loan.
For example, let’s compare a borrower with a 620 credit score and a borrower with a 680 credit score. The borrower with the 680 score had a foreclosure one year ago. In comparison, the 620 score buyer has perfect rent history and some medical collections. In this case, we will issue approval to the borrower with the 620 score. Why? – FHA collection guidelines are more lenient when it comes to medical collections, and a borrower with a history of foreclosure is a greater risk.
Also, your retail credit score may be different than your mortgage credit score. Loan officers use 3 different reports from the credit bureaus: Equifax, TransUnion, and Experian to determine your mortgage credit score. Tools like Credit Karma may show a slightly different score than what your loan officer will find when running a credit check.
Don’t assume that you cannot qualify or will qualify for a loan without speaking to your loan officer first. If your credit score needs work, we can help you make a plan to get your credit score within the right range.
Minimum Credit Scores By Loan Type
You will find a list of each loan program’s minimum credit scores (according to that program’s specific guidelines) below. Think of the minimum score as a benchmark of success versus a barrier to entry.
FHA – 580
An FHA loan (Federal Housing Administration) is a government-insured mortgage program, where the insurance helps protect the lender from a loss. If you have at least 3.5% ready for a down payment, the minimum credit score for qualification is 580. However, if you have a credit score of 500-579, it is possible you could qualify with a 10% down payment.
VA – No minimum credit score
Unlike FHA loans, the VA (Veteran’s Affairs) does not have a disclosed minimum credit score to qualify. Instead, they allow each lender to use their own qualification criteria. You should follow up with your OVM Financial loan officer to discuss those eligibility requirements if you are looking to apply for a VA loan.
USDA Loan – No minimum credit score
Like VA loans, the USDA (US Department of Agriculture) does not have a minimum credit score for their program, and they go by each individual lender’s minimum criteria. However, if you have a decent credit score, you could potentially qualify for a no-money-down approval!
Conventional Mortgage – 620
If you’re not interested in any government-insured programs, you can go with a standard conventional mortgage. The minimum credit score for this mortgage is going to be dependent upon the lender’s eligibility criteria. However, most lenders will require at least a 620 credit score for a conventional mortgage.
The Bottom Line
While it’s important to understand the role that credit score plays in mortgage approval, it’s not the only factor that will determine your eligibility. Set up a consultation with one of our loan officers to determine where you stand. They will help you choose a loan program that will be a good fit for your credit score range or provide guidance to get you one step closer to your ultimate goal.
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