Credit scores are an important factor when it comes to getting approved for a home loan. The minimum credit score needed for most mortgages is usually around 620, but government-backed mortgages, such as Federal Housing Administration (FHA) loans, tend to have lower credit requirements. Many first-time homebuyers worry that their credit ratings are too low to buy a home, but it's important to know that whether your credit rating is “good” or “bad” is subjective and will not affect your home purchase. Mortgage lenders are subject to specific rules that determine the credit scores you need to buy a home, and those rules vary depending on the type of loan.
Here is a breakdown of the credit score requirements for different types of loans:
Conventional LoansConventional loans are not backed by the government and typically require a higher credit score than other loan types. Generally, lenders require a minimum credit score of 620 for conventional loans. However, some lenders may require a higher score.
FHA LoansFHA mortgages are the original mortgage loan, developed by the Federal Housing Administration in the 1930s to keep homeownership attainable. 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.
The minimum credit score required for an FHA loan is usually around 580.
VA LoansVA loans are backed by the Department of Veterans Affairs and are affordable home loans for active duty service members and veterans. VA Loans don't require a down payment and historically, VA mortgage rates tend to be the lowest of all available mortgage loans. The minimum credit score required for a VA loan is usually around 620.
USDA LoansUSDA mortgage loans don't require a down payment and offer interest rates that, on average, are 0.50% lower than conventional loan rates. USDA guidelines require credit scores of at least 620, but exceptions can be made for homebuyers with extenuating circumstances.
Jumbo LoansJumbo loans serve homebuyers whose mortgage loans are too large for local mortgage loan limit.
There is no specific credit rating requirement for a jumbo mortgage, although higher scores are more likely to be approved and assigned a lower interest rate. Homebuyers with lower credit ratings are often assigned an interest rate. It's important to note that there's no way around a credit check when it comes to buying a home during the mortgage pre-approval stage. You can also check your credit score if you get pre-approved.
If you've never reviewed a credit report, it can be overwhelming, but there are public resources that can help you or you can ask for help in our chat. Low Credit Scores create risk for mortgage lenders, and large down payments eliminate risk. Therefore, buyers with the ability to increase their down payment amount are more likely to get mortgage approval. It's also important to note that your credit rating isn't the only factor in mortgage approval; however, it is a key indicator of your financial health.
Freddie Mac's first-time homebuyer program, Home Possible, is helping buyers get into homes with a very low down payment and moderate credit. Lenders often reward borrowers with high credit scores with fewer documentation requirements, a smoother approval process, and exceptions for high debt-to-income ratios (DTI). That said, applying for an FHA loan with a very low credit score can still be a challenge, as lenders can impose their own higher credit minimums. Your loan officer will help you compare different options and determine which bad credit home loan is the best option for you.
Most jumbo loan programs require a credit score of at least 700, although there may be programs with lower score limits if you can afford a higher interest rate and payment. Another option would be to have a friend or family member buy the home, add it to the title, and then try refinancing in your name when your credit ratings improve enough. The Department of Agriculture does not have a set minimum credit score, and lenders may require their own minimum scores. It's important to track your credit, make on-time payments, and get help choosing the right mortgage loan for you if you have questions about your credit rating and loan options.