While it is certainly possible to get approved for a conventional mortgage with a 675 credit score and a 75% loan-to-value (LTV) ratio, there are several points to consider. First, a 675 credit score is considered below average which means you pay a higher mortgage rate on a conventional loan. A higher rate increases your monthly payment which costs you more money in the long run.
The good news is that a 75% LTV ratio is lower than the maximum LTV ratio of 80% that you typically cannot exceed to qualify for a lender’s best mortgage terms. It is certainly possible to qualify for a mortgage with an LTV ratio above 80% but your mortgage rate is usually higher. Plus, with a conventional loan you are usually required to pay private mortgage insurance, which is an extra ongoing monthly cost. Being below the 80% maximum LTV ratio improves your ability to get approved for the loan and may enable you to qualify for better mortgage terms.
So there are both positives (low LTV ratio) and negatives (low credit score) that apply to your situation if you want a conventional loan. Having a low credit score usually overrides a low LTV ratio but your best course of action is to review multiple mortgage quotes from conventional lenders. In addition to your credit score and LTV ratio, lenders also consider your debt-to-income ratio, employment history, property type and other factors to determine your mortgage terms.
The table below outlines mortgage rates and closing fees for conventional lenders in your area. We recommend contacting multiple lenders to find the best conventional mortgage terms.
Your other option is the FHA mortgage program which enables you to qualify with a credit score of 500 as long as your LTV ratio does not exceed 90%, which applies to your situation. FHA mortgage rates may also be lower than conventional loan rates because the program is backed by the government, which means the lender is protected if you default on your mortgage.
Review our FHA Mortgage Guide
The downside to an FHA loan is that you are required to pay an upfront and ongoing mortgage insurance premium (MIP) which adds to both your closing costs and your mortgage payment. If your LTV ratio is 90% or less at the time your mortgage closes you are required to pay monthly FHA MIP for eleven years. If your LTV ratio is greater than 90% at closing, you are required to pay MIP for your entire mortgage. Unlike PMI for a conventional loan, FHA MIP is non-cancellable so you cannot request to have it removed if your property value changes.
So when comparing a conventional mortgage to an FHA mortgage, you need to determine if the potential lower FHA rate offsets the higher closing costs and monthly mortgage insurance you are required to pay -- so the all-in cost of the loan.
Again, your best course of action is to compare FHA mortgage terms to conventional loan terms understand which financing option offers the lowest monthly payment, including mortgage insurance premium for the FHA loan. You can also compare closing costs as well.
The table below enables you to compare both FHA and conventional mortgage terms including interest rates and closing fees. The costs for the FHA loan include the upfront FHA mortgage insurance premium. We always recommend that you contact multiple lenders to find the lowest combination of mortgage rate and fees, especially when you are evaluating different loan programs. Shopping for your mortgage is the best way to save money on your loan.
"Standard Eligibility Requirements." Eligibility Matrix. Fannie Mae, October 2 2019. Web.« Return to Q&A Home About the author