If your credit score is 620 or higher and you meet other requirements, you should have no problem getting a mortgage. Credit scores in the 620 to 680 range are generally considered fair credits. There are many mortgage lenders who offer loan programs to borrowers with credit scores in the 500's. With a credit rating above 600, your options open up even more.
Conventional mortgages only require a score of 620 to qualify. And with a credit score of 680 or higher, you can apply for just about any home loan. While credit rating requirements vary by type of loan, mortgage lenders generally require a 620 credit rating to buy a home with a conventional mortgage. FHA loans can benefit borrowers with lower credit ratings or those who spend a significant portion of their income on housing.
Conventional loans also tend to offer the most competitive interest rates and flexible repayment periods, from mortgage terms of 8 to 30 years. Instead of settling for the mortgage rates you currently qualify for, consider postponing homeownership and working to increase your credit rating and improve your options. A low credit score shows lenders that you may have a history of accumulating debt or not making your monthly payments. Conventional loans are usually better for those with good or excellent credit, since they require a higher credit score than government-insured loans. You can take steps to improve your score and get a lower mortgage rate and save thousands of dollars.
Paying your bills on time and watching your credit utilization rate can help you convince the mortgage lender to give you a higher loan amount. Private lenders may also offer “unqualified mortgage (non-QM)” programs that are not backed by any government agency and may have more lenient rules. FHA loans are more inclusive than other loan options because of their more relaxed down payment requirements and because FHA doesn't change your interest rate based on your credit score. However, FHA loans originate from private lenders, and these lenders generally have their own minimum credit rating requirements. The good news is that there is a government-backed loan program specifically for you on the mortgage insured by the Federal Housing Administration. Therefore, if your credit rating is too low for a conventional mortgage loan, it might be worth waiting to buy until you can increase your credit rating and lower your borrowing costs.
In short, most lenders' insurers will consider your entire financial life, not just your credit score when you apply for a home loan. However, keep in mind that the FHA requires an upfront and annual mortgage insurance premium (MIP), which will increase the total cost of your loan.
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