Your credit score plays a pivotal role in the home-buying process. It will determine if you qualify for a mortgage loan and also affect your terms and conditions. You don’t necessarily need an exceptional credit score to secure a mortgage loan, but a good score helps you get the best interest rates and flexible conditions. Although the minimum credit score requirements depend on the lender and the loan type, you generally need a minimum credit score between 600 and 700.
Let’s discuss the minimum credit score for financing a house by loan type and how it affects your home-buying process.
Minimum Credit Score By Loan Type
As stated above, you don’t need an outstanding credit score to secure a mortgage loan. Still, the current economic situation has made lenders implement strict conditions to determine whether a candidate qualifies for a loan.
A higher credit score, one that’s more than 620, improves your chances of approval and getting better terms. Moreover, applicants with credit scores of 740 or higher will also get the lowest interest rates.
There are 5 types of home loans, and each requires a minimum credit. Let’s have a look at each.
Conventional
By far the most commonly used home loans, conventional loans require a minimum credit score of 620 but can go as high as 750. These loans are not backed by any government agency but follow certain standards set by Fannie Mae and Freddie Mac.
FHA
These loans are backed by the federal housing administration and require a minimum credit score of 500. If your credit score is between 500 and 579, you will be required to make a down payment of 10%; it can easily go down to 3.5% if your credit score is above 580.
Jumbo
This is a type of nonconforming mortgage loan where you can get a higher loan limit. However, lenders require a minimum credit score of 700 or higher to grant these loans.
VA Loan
This home loan is backed by the Department of Veterans Affairs and doesn’t have a minimum credit score requirement, although VA lenders set a limit themselves, usually around the low to mid 600s.
USDA
USDA loans benefit low to moderate-income families that buy houses in rural areas. These loans are backed by the U.S. Department of Agriculture and don’t have a minimum set requirement, although having a credit score over 640 can qualify you for streamlined credit analysis.
There are many ways to improve your credit score and secure a mortgage loan, such as paying bills on time, checking credit reports, and reducing utilization. For more information regarding credit scores, check out Credit Builder LLC. We have over 20 years of experience in the finance industry and help people understand credit and how it functions in simple terms.