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Minimum Credit Score Required to Buy a Home | Welcome Guides


Through Updated on June 17, 2017

Your credit score is just one of the factors your mortgage lender will use to determine if you qualify for financing. The problem is that each lender uses different methods to determine your creditworthiness. Thus, in some cases, a minimum score is difficult to determine for conventional loans. In other cases, particularly where the loans are underwritten or insured by government agencies, there are minimum credit scores to qualify.

Acceptable grades

The score your lender will accept for a conventional loan can be determined by many factors, including your payment history, salary history, current salary, available credit, scores other lenders accept, and the current economic climate. Cornett Communications reports that even in times of economic crisis, a score of at least 650 will allow you to access funding.

Fannie Mae

Fannie Mae is one of two government-backed mortgage companies; Freddie Mac is the other. Independent lenders take a lot of inspiration from what these two organizations do. According to the Washington Post, Fannie Mae increased its minimum credit score for conventional loans in 2009 from 580 to 620. Even if you have a 20% down payment, you can be rejected if your score is below 620. Fannie Mae also refuse a loan if more than 45% of your income is spent on debt repayment.

Government guaranteed loans

Home loans guaranteed or funded by the Federal Housing Administration and the Veterans Administration have different views on credit scores. The FHA recently changed its minimum credit score to 580, which qualifies you for loan programs that only require a 3.5% down payment. VA loans are 100% funded and reserved for serving and retired military members and their families. There is no minimum credit score to qualify, although a better credit score will get you a better interest rate.

What Your Score Earns You

Your credit score is one of the factors that will determine your mortgage interest rate. The higher your score, the better your interest rate will be. FICO, also known as Fair Isaac Corporation, posted the differences in interest rates you could pay, based on your score. If your score is between 620 and 639, considered a risky score by some creditors, you could pay an interest rate of 5.718% on a $300,000 30-year conventional mortgage. In mid-August 2010, if your score is at the high end, 760 to 850, your interest rate could be 4.129% on the same loan. A score of 650 can earn you a rate of 5.172%.

Addressing Your Credit Score

If your credit score isn’t qualifying you for a home loan now, there are things you can do to improve your score, which are updated on a monthly basis. Make sure all your bills are paid on time; late payments lower your score. Repay your credit balances; Maxed credit accounts can also hurt your score. Also, regularly check your credit report for errors. This is one of the easiest ways to improve your score. If you find errors on your report and you can prove that they are errors, the credit bureau is required to remove them.