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Credit Score Required for a Mortgage

Credit Score Required for a Mortgage

  • Credit Score Overview
  • One of the most important inputs in the mortgage process is your credit score so it is very important that you know your score before you start the process.  In short, your credit score provides an indication of how likely you are to pay back your mortgage and lenders focus on it when determining how much money they are willing to lend you and the cost to you for borrowing that money (the interest rate).  A higher credit score means that lenders will be more willing to lend you money and charge you their lowest interest rate.  A lower credit score means that lenders will be less willing to lend you money and charge you a higher interest rate if they do.  In many cases a borrower has enough income to afford a monthly mortgage payment but they cannot qualify for a mortgage due to a poor credit score or credit history.

    The charts below show you the credit score required for a mortgage, how your score ranks and how your credit score affects your mortgage rate.  In short, the higher your credit score, the lower your mortgage rate, and vice versa.  Simply put, borrowers with higher credit scores save money on their loan, can qualify for a higher mortgage amount and are eligible for more loan programs.  The charts below are examples. To get updated mortgage rates click MORTGAGE RATES

760-850
700-759
723
680-699
687
580-679
560-579
500-559
Excellent
Very Good
Median FICO Score
Good
Average FICO Score
Not Good
Poor
Very Poor
760-850
700-759
680-699
580-679
560-579
500-559
3.750%
3.750%
3.750%
4.250%
8.500%
9.500%
  • What Credit Score Is Required for a Mortgage?
  • There are multiple factors that determine the credit score required for a mortgage, including your down payment amount and loan-to-value (LTV) ratio, but lenders typically require that borrowers have a minimum credit score in the mid 600s to qualify for a mortgage although it may be possible to qualify for certain loan programs with a lower score.  Additionally, borrowers with a minimum credit score of 680 - 700 typically receive a lender's lowest mortgage rate.

    If you have a lower credit score it does not mean you cannot get a mortgage.  There are multiple conventional and government-backed mortgage programs for borrowers with lower credit scores and most of these programs have lower down payment requirements as well. For example, the Fannie Mae HomeReady Mortgage Program is available to qualified borrowers with a minimum credit score of 620 (or no traditional credit score at all) and the FHA Home Loan Program is available to borrowers with a minimum credit score of 580  if you make a down payment of 3.5% or a credit score as low as 500 if you make at a down payment of at least 10%. The NACA Mortgage Program does not require a credit score and instead uses a character-based borrower credit profile evaluation.

    Both the HomeReady Mortgage Program and the FHA Home Loan Program require borrowers to pay additional mortgage insurance fees on top of their monthly mortgage payment but the NACA Mortgage Program does not. Many but not all mortgage programs for borrowers with lower credit scores also charge a higher interest rate with the FHA Mortgage Program being a notable exception by charging a lower interest rate. We provide a comprehensive comparison of mortgage programs for borrowers with lower credit scores including eligibility requirements, extra costs and interest rates.  Additionally, there are alternative mortgage programs for borrowers with much lower credit scores or severely impaired credit profiles.

    In addition to your credit score, serious credit events may impact your ability to qualify for a mortgage.  If you have experienced a serious credit issue such as a bankruptcy, short sale, default or foreclosure, most lenders impose waiting periods before you can apply for a mortgage.   For example, if you experienced a short sale you may not be able to qualify for a mortgage for two years and if you experienced a foreclosure you may not be able to qualify for a mortgage for seven years.  The waiting periods are different depending on the credit event and are shorter if an extenuating circumstance such as a job loss or medical illness contributed to the event.  The waiting periods also vary depending on mortgage program with conventional (non-government backed) mortgages requiring longer waiting periods than government-backed programs such as the FHA and VA mortgage programs.  We provide a comprehensive discussion of the waiting periods following negative credit events before you can apply for a mortgage.

  • When Should I Check My Credit Score Before Applying for a Mortgage?
  • We recommend that you review your credit score six months to a year before you start the mortgage process.  This will help you avoid negative surprises and allow you to address potential issues with your credit report in advance of applying for a mortgage.  By reviewing your credit score months before you apply for a mortgage you can take positive steps to improve your credit profile such as addressing unknown bill mix-ups and late payments or potentially reducing your credit card balances.  Your credit score may continue to be impacted by past negative credit events, such as a late payment or charge-off, for a minimum of twelve months so the sooner you identify and address any issues the better. Additionally, it can take one-to-two months for your credit score to reflect positive credit actions, such as paying down credit card debt.

  • Great Mortgage IdeaBeing proactive about your credit profile will help you avoid negative surprises later in the mortgage process, qualify for a mortgage and receive the lowest possible interest rate.  That is why FREEandCLEAR emphasizes understanding your credit score six months to a year before you start the mortgage process.
  • A common question is does it hurt my credit score when I check my credit score multiple times and the answer is no. Checking your own credit score is known as a soft inquiry and although this type of inquiry is recorded on your credit report, it does not lower your credit score. You can use free services such as AnnualCreditReport.com, CreditKarma or credit.com to check your credit score on a weekly or monthly basis without lowering your credit score.

    Please note that when you apply for a mortgage, or in some cases apply to get pre-approved for a mortgage, lenders will pull your full credit report.  This counts as a hard inquiry and may have a moderately negative effect on your credit score if done repeatedly over several months.  When multiple lenders pull your credit score within a specified time period; however, this only counts as one event so the borrower is not penalized for getting pre-approved or comparing multiple lenders when shopping for a mortgage.

  • Trended Credit Data
  • As of September 2016, Fannie Mae implemented the use of trended credit data as an additional factor to determine if an applicant qualifies for a mortgage. In short, Fannie Mae is a government-sponsored enterprise that provides mortgage capital to lenders. Although the policies and practices used by Fannie Mae do not apply to all lenders or applicants, they have significant influence on borrower qualification guidelines across the mortgage industry.

    Trended credit report data contains monthly information on how a borrower has managed their credit and paid their bills over the prior twenty-four months as compared to a traditional credit report that only contains current information on a borrower's account balances, credit availability and on-time payment history.  For example, trended credit data shows if borrowers have made the minimum monthly payment, paid more than the minimum payment or consistently paid off their credit card balances over the prior two years.  Trended credit data provides lenders with additional and more detailed information that they can use as an added input to determine if an applicant qualifies for a mortgage.  For example, analysis shows that borrowers who consistently pay more than the minimum monthly payment or who regularly pay-off their credit card bills are significantly less likely to default on their mortgage.  With these borrowers, trended credit data provides more relevant information to inform the lender decision-making process than a standard credit report which only offers a snap-shot of a borrower's credit profile at a given point in time.  

    It is important to highlight that trended credit data does not replace your credit score and your credit score remains one of the most important factors in determining your mortgage rate.  Trended credit data that demonstrates an applicant's ability to consistently repay debt over time, however, may enable more applicants with mid-to-low credit scores to qualify for a mortgage.  The use of trended credit data in the mortgage process should also motivate borrowers to consistently make more than the minimum payment on their credit card bills, which also saves them money on interest expense.

    Because the use of trended credit report data was implemented relatively recently, applicants should ask lenders if it will be used in the mortgage qualification process and understand if the use of trended credit data helps or hurts their ability to qualify for a loan.

  • How Do Lenders Treat Different Credit Scores?
  • When you apply for a mortgage, lenders typically pull your credit report from the three main credit bureaus: Equifax, Experian and TransUnion.  Lenders review a borrower's credit reports and scores from all three bureaus and typically use the middle score to determine your ability to qualify for a mortgage as well as loan pricing (e.g., what interest rate you pay).  For example, if your Equifax credit score is 640, your Experian credit score is 660 and your TransUnion credit score is 740, the lender will use the Experian score of 660 to assess your application.  The three bureaus use relatively similar scoring methodologies -- making your payments on-time, maintaining low credit utilization and limiting the number of credit accounts you have open leads to higher scores for all three.  Despite using similar methodologies, there may be differences across your three credit scores and reports that could affect your ability to get approved for a mortgage.  For example, one bureau may report a collection on your credit report that the other two bureaus do not report.  Given these potential differences, it is important that borrowers understand their scores for all three bureaus. 

  • Great Mortgage IdeaTo identify any significant discrepancies and avoid negative surprises, FREEandCLEAR recommends that borrowers review their credit scores and reports from all three bureaus before applying for a mortgage.
  • How Lenders Treat Credit Scores for Co-Borrowers
  • It is important to understand the credit score required for a mortgage when two people apply as co-borrowers.  If you apply for a mortgage with a spouse or partner, the lender uses the lowest credit score among the borrowers to determine the credit-worthiness of the applicants.  For example, if your credit score is 780 and your co-applicant's score is 640, the lender uses the 640 score to evaluate your loan application and to determine your mortgage rate.

    If two people are applying for a mortgage and one individual has a good credit score and the other individual has a poor credit score, it may make sense to only have the individual with the good credit score apply for the mortgage.  If you decide to only have one person apply for a mortgage it is important that you can qualify for the mortgage with only that person's income and you do not need both individuals' incomes to afford the loan you want. You can add the second individual to the property title after the mortgage closes although the actual mortgage will always remain in the name of the individual who applied for the loan unless you refinance the mortgage and have both individuals jointly apply for and receive the new loan.

  • Second Credit Check Before Your Mortgage Closes
  • Many, but not all, lenders check your credit a second time prior to your mortgage closing, before you reach the "clear to close" stage of the mortgage process.  "Clear to close" means that you have satisfied all conditions required for your mortgage to close.  Lenders check your credit prior to closing to determine if there have been significant changes in your credit profile since you applied for the mortgage. If you incurred significant new debt or opened several new loan accounts, that can hurt your credit score or debt-to-income ratio. If you incur too much new debt, your credit score declined significantly or your monthly debt expenses increased significantly compared to when you applied for the mortgage, the lender may determine that you no longer qualify for the loan and the lender may decide to cancel the loan. This outcome not common and is presented as a worst case scenario. Lenders are focused on borrowers whose credit profiles have changed significantly such as if you take out a new car loan, apply for multiple new loans or incur new credit card debt by making major purchases.  Borrowers should avoid applying for new loan accounts or taking on significant new debt until after their mortgage closes.  Please note that If the lender intends to check your credit prior to closing, the additional credit check should be listed as a condition to close but unfortunately that is not always the case.

  • Getting a Mortgage With No Credit Score
  • Borrowers with limited credit histories, such as no credit cards, auto or student loans, may not have a credit score which makes getting a mortgage challenging but not impossible. Borrowers without a score can qualify for a mortgage by providing two items that establish their credit history over the past twelve months. One of the items must be a rental payment history and the other item can be a monthly bill for a cell phone, gym membership or utility.

    Getting a mortgage with no credit score comes at an additional cost to borrowers. No score borrowers typically receive the same interest rate as borrowers with a 620 credit score, the lowest score required to qualify for a mortgage. This means borrowers without a credit score may pay an interest rate that is .5% - 1.0% higher than borrowers with good or excellent credit scores, and potentially higher depending on the mortgage program.

    To qualify for the a no credit score mortgage, borrowers must make a down payment of at least 10% although the down payment can come from a gift. Please note that if you make a down payment of less than 20% you are required to pay private mortgage insurance (PMI) which is an additional ongoing cost on top of your monthly mortgage payment.

    No credit score mortgage loan amounts must be less than the conforming loan limit for your county. Additionally, the program only applies to single unit primary residences so multifamily and investment property are not eligible. No credit score mortgages are available for home purchases and no cash-out refinances.

    Borrowers with no credit score should also explore the Fannie Mae HomeReady Program which considers alternate credit histories as well as the NACA Home Loan Program which does not require a credit score.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Compare Mortgage Rates as of September 19, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
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