Excellent Credit Score Home Loans
An excellent credit score of 750 and above is the best place to be when youre shopping for a mortgage. It will help you get the lowest interest rate whether you want a conventional, USDA, VA, or FHA loan:
- Conventional loan: With an excellent credit score, youll be able to get competitive bids from multiple lenders on a conventional loan. And, if youre putting down less than 20%, an excellent credit score will help you get the most favorable PMI premiums.
- USDA or VA loan: Qualifying borrowers with excellent credit might still choose a USDA or VA loan if they dont have a down payment.
- FHA loan: Theres little reason to get an FHA loan when you have excellent credit. You will probably qualify for a conventional loan and avoid paying the FHAs mortgage insurance premiums. An exception might be if your DTI ratio, including your proposed mortgage payment, is 45% to 50% and youve been rejected by multiple lenders for a conventional loan.
Find Out: 800 Credit Score Mortgage Rate: What Kind of Rates Can You Get?Other factors your lender will consider for your mortgage rate:
- Income: Youll need a documented history showing two years of steady income in the same line of work.
- Debt: Your debt cannot consume so much of your income that your mortgage and living expenses wont be manageable.
- Down payment: The higher your down payment, the less risky you are to lenders. The gold standard is 20% or more.
Find Out: How to Get the Best Mortgage Rates
How Much Extra Will A Low Credit Score Cost You
Interest rates for new and refinanced mortgages hit record lows over the course of 2020. The average 30-year fixed mortgage rate was 4.87 percent in November 2019, according to Freddie Mac, but by the start of 2021, interest rates were hovering around 3 percent.
Those record-low rates might not be available to borrowers with bad credit, however. While rates are lower across the board than they were a year ago, applicants with low credit scores should expect to pay more than borrowers with stronger credit.
The table below shows that home loans for bad credit borrowers are significantly more expensive than mortgages for borrowers with good credit. Examples are based on national averages for a 30-year fixed loan in the amount of $248,640 the national median home price, less 20 percent, according to the National Association of Realtors using myFICO.coms loan savings calculator.
Heres how much youd pay at rates available at the time of publication, depending on your credit score range:
The Basics What Is A Credit Score
Your credit score isnt just for getting a mortgage. It paints an overall financial picture. The term credit score most commonly refers to a FICO score, a number between 300 and 850 that represents a persons creditworthiness the likelihood that, if given a loan, she will be able to pay it off. A higher number corresponds to higher creditworthiness, so a person with a FICO score of 850 is almost guaranteed to pay her debts, whereas a person with a 300 is considered highly likely to miss payments.
The formula for calculating a FICO score was developed by Fair, Isaac and Company , and while the specifics remain a secret so that no one can game the system, FICO has made the components of the score public. The formula takes into account the following factors, in descending order of importance:
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How To Get A Mortgage With A Credit Score Under 620
Here is what most banks and mortgage companies will not tell you. If you have a bad credit score they dont want your business. Its the truth. Every financial institution wants borrowers with good credit, a healthy down payment, a stable job and low manageable debts.
The reality is that most people dont fit the typical box. The key is to work with a lender willing and able to complete your loan. The takeaway factor here is willing. If your financial picture isnt good that does not necessarily mean you cannot get a loan. What it means is you might not find a lender willing to make a loan because of the risk. One of those forms of risks that is a big hot button with financial institutions is credit. A credit score is the best representation of how likely you are to have a payment default in the next 30 days. The lower your credit score the more likely of this payment default increases.
Most lenders have a credit score requirement of at least 620 for a conventional loan or higher and the same for an FHA loan. There are some big-name banks and lenders who promote their ability to get your mortgage done with a lesson 620 credit score however the red tape associated with it can be quite intense to say the least. Here is where this comes into play.
Lenders look at credit scores in the form of buckets. For example, here is a following bucket you might fit into based on your particular credit score
600-619 is a bucket540- 570 is a bucket
What Credit Score Is Needed To Buy A House
You dont need flawless credit to get a mortgage. In some cases, scores can even be in the 500s. But because credit scores estimate the risk that you wont repay the loan, potential lenders will reward a higher score with more choices and lower interest rates.
For most loan types, the credit score needed to buy a house is at least 620. But higher is better, and borrowers with scores of 740 or more will get the lowest interest rates.
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Can You Get A Loan With A 620 Credit Score
Youre right on the edge of being approved for several types of loans with a 620 credit score. For others, your approval odds are high.
In any case, youll likely face steeper APR, deposit requirements, and income requirements due to your fair credit score.
Heres a closer look at your eligibility for loans and credit cards.
Whose Credit Score Is Used On A Joint Mortgage
A joint mortgage allows two or more people to purchase a home together, and both buyers fill out a joint mortgage application.
One of the main benefits of applying for a joint mortgage is that youll have more income to put toward your home purchase.
Including two earners on your application means you’re more likely to be approved for a mortgage, you may be able to borrow more money and you could purchase a more expensive home.
Is A 620 Credit Score Good Or Bad
Waiting for a loan approval can be a roller coaster of an experience. People take out loans for many different reasons, and often are prompted by significant purchases like buying a car or purchasing a first home. Unfortunately, many borrowers begin the loan application process without all of the information they should have.
Most people know how much debt they have — or how much money they have in the bank. But what they dont know is the impact their financial behavior has on their credit score, which will likely determine whether a loan application gets approved or denied.
What happens if your score is 620right at the center of the Fair range of FICO scores? Is it good or bad? That depends on what youre applying for.
In general, its crucial to understand where you stand with regard to your credit score, and which financial products it qualifies you for. Knowing how lenders interpret your score helps you gain more control over your financial life. Thats what this report focuses on.
|FICO Score Range||Percentage of Americans in that range|
|FICO Score Range800-850||Percentage of Amerians in that range21%|
|FICO Score Range740-799||Percentage of Amerians in that range25%|
|FICO Score Range670-739||Percentage of Amerians in that range21%|
|FICO Score Range580-669||Percentage of Amerians in that range17%|
|FICO Score Range300-579||Percentage of Amerians in that range16%|
What Interest Rate Can I Get With My Credit Score
While a specific credit score doesnt guarantee a certain mortgage rate, credit scores have a fairly predictable overall effect on mortgage rates. First, lets assume that you meet the highest standards for all other criteria in your loan application. Youre putting down at least 20% of the home value, you have additional savings in case of an emergency and your income is at least three times your total payment. If all of that is true, heres how your interest rate might affect your credit score.
- Excellent Your credit score will have no impact on your interest rate. You will likely be offered the lowest rate available.
- Very good Your credit score may have a minimal impact on your interest rate. You could be offered interest rates 0.25% higher than the lowest available.
- Good Your credit score may have a small impact on your interest rate. This means rates up to .5% higher than the lowest available are possible.
- Moderate Your credit score will affect your interest rate. Be prepared for rates up to 1.5% higher than the lowest available.
- Poor Your credit score is going to seriously affect your interest rates. You may be hit with rates 2-4% higher than the lowest available.
- Very Poor This is trouble. If you are offered a mortgage, youll be paying some very high rates.
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Who Sets Va Loan Credit Score Requirements
It’s important to understand the VA’s role in the VA loan process. The VA doesn’t set a minimum credit score requirement but instructs lenders to make sound judgments.
The VA’s role is to oversee the program and guarantee a portion of each loan in case of default. But the VA does not issue loans, and the agency does not enforce credit score minimums. Private lenders handle both of these duties.
Most VA lenders use credit score benchmarks. Applicants with scores below a lender’s standard usually can’t be approved for VA financing. That minimum will vary from lender to lender.
Auto Loan Options With A 620 Credit Score
Lenders take on a big risk when they issue auto loans, so their rates can be quite high.
Thats especially true if you have a fair credit score. With any score lower than a 700, getting approved for an auto loan can be tricky.
A lot of credit issuers are willing to extend car loans to individuals with a 620 credit score, but your interest rates could amount to a few thousand dollars more interest than you would with a good credit score.
You should also note that your approval odds and rates will be better if you apply for a used car.
The good news is, you should be able to get an auto loan with your current credit score.
The better news is that you could easily get an even more competitive loan with a little work to improve your credit.
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What Else Do Lenders Look At When You Apply
As we mentioned, your credit score is not the only factor lenders examine before they approve or decline your application. They also want to see a favourable history of debt management on your part. This means that on top of your credit score, lenders are also going to pull a copy of your to examine your payment record. So, even if your credit score is above the 600 mark, if your lender sees that you have a history of debt and payment problems, it may raise some alarms and cause them to reconsider your level of creditworthiness.
Other aspects that your lender might look at include, but arent limited to:
- Your income
- The amount youre planning to borrow
- Your current debts
- The amortization period
This is where the new stress-test will come into play for all potential borrowers. In order to qualify, youll need to prove to your lender that youll be able to afford your mortgage payments in the years to come.
Theyll also calculate your monthly housing costs, also known as your gross debt service ratio, which includes your:
- Potential mortgage payments
- Potential cost of heating and other utilities
- 50% of condominium fees
This will be followed by an examination of your overall debt load, also known as your total debt service ratio, which includes your:
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Ways To Help Strengthen Credit Scores To Buy A House
If your credit scores need work before you buy a house, consider these ways to help improve your scores:
- Make on-time payments. FICO and VantageScore both say your track record of making on-time paymentsâyour payment historyâcan be a significant factor in determining your credit rating. You could use email reminders or calendar alerts to remind yourself. And setting up automatic payments can ensure you donât miss a payment due date.
- Pay more than the minimum. Making only your comes with a cost: interest charges. And interest can add up and cost you more money in the long run. Interest can even make it harder to pay off debt. So consider this from the CFPB: âPaying off your balance each month can help you get the best scores.â
- Keep your balances low. The CFPB recommends that you not spend more than 30% of your available credit. A low âa measure of how much of your available credit youâre usingâcould be a sign that youâre using your credit responsibly and not overspending. And that could help you improve your score.
- Apply only for the credit you need. As the CFPB explains, âCredit scoring formulas look at your recent credit activity as a signal of your need for credit. If you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed negatively.â
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Qualifying For A Lower Mortgage Rate
It may be helpful to improve your credit score before applying for a mortgage so you can qualify for a lower mortgage rate and save tens of thousands of dollars over the life of the mortgage. The money you save on your mortgage is well worth the time and effort to improve your credit score.
If you have a low credit score, review your credit reports to see the items that are affecting your credit score. You can raise your credit score by making timely payments on all your bills, paying down your credit card debt, removing errors from your credit report, and paying off outstanding delinquent balances. In some cases, just a few points can make a big difference in your mortgage rate.
Continue to monitor your credit score in the weeks leading up to your mortgage application to see how your credit score improves.
How To Get A Conventional Loan With Less Than A 620 Credit Score
If you asked a loan officer what the minimum credit score was for a Conventional loan they would tell you 620.
That is true for Fannie Mae. However, its not necessarily true for Freddie Mac.
If we can get an automated approval with Freddie Mac with a credit score under 620 we can do the loan!
Keep in mind you wont be able to get mortgage insurance on a Conventional loan with a score under 620, so the loan to value ratio would have to be 80% or less.
So, if your credit score is in the high 5s or low 6s, and you want a Conventional loan give me a call or shoot me an email. maybe we can help you out!
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Learn And Grow Your Credit Score
While everyone with a FICO® Score of 620 gets there by his or her own unique path, people with scores in the Fair range often have experienced credit-management challenges.
The credit reports of 41% of Americans with a FICO® Score of 620 include late payments of 30 days past due.
Credit reports of individuals with Fair credit cores in the Fair range often list late payments and collections accounts, which indicate a creditor has given up trying to recover an unpaid debt and sold the obligation to a third-party collections agent.
Some people with FICO® Scores in the Fair category may even have major negative events on their credit reports, such as foreclosures or bankruptciesevents that severely lower scores. Full recovery from these setbacks can take up to 10 years, but you can take steps now to get your score moving in the right direction.
Studying the report that accompanies your FICO® Score can help you identify the events that lowered your score. If you correct the behaviors that led to those events, work steadily to improve your credit, you can lay the groundwork to build up a better credit score.