What credit score do you need to qualify for a mortgage?

Blog posted On February 21, 2019

Part of applying for a mortgage is building your credit or improving your score.  Lenders use your FICO® credit score to determine your creditworthiness and whether or not you are a good candidate for mortgage financing.  Before the Financial Crisis, you could get a mortgage or other line of credit, with very little credit history, a low score, or even no score.  Today, lending standards have improved greatly, and you will need higher credit to finance your home purchase.  What credit score do you need to qualify for a mortgage?

To facilitate homeownership, there are different types of mortgage programs available for almost all levels of credit scores.  Of course, the higher your credit score, the better chance you have of qualifying for a lower interest rate. 

Conventional Financing

The minimum FICO® score required for a conventional mortgage is 620.  This will differ from borrower to borrower based on the debt to income ratio, cash reserves, and the size of the down payment.  

FHA Loan

FHA loans have more lenient credit standards and are designed for first-time home buyers or buyers with lower income.  FHA loans are available with a 3.5% down payment if the borrower has at least a 580 FICO® score.  If the borrower has a lower score, they may still be able to secure an FHA Loan with a 10% down payment.  Again, the credit score requirements will vary depending on other factors.

Numerous online resources allow you to estimate your credit score, in many cases for free, but these estimates may differ from your actual FICO® score.  It’s good practice to monitor your credit with these resources and watch out for any surprises, but when you actually get your credit pulled during a loan application, your FICO® score is slightly different. 

Although your credit score is an important part of your ability to qualify for mortgage financing, there are numerous other factors that make up your financial profile, including the size of the down payment, your income and assets, your debt to income ratio, and your employment history.  A lower down payment will mean you have to pay a higher interest rate, plus mortgage insurance, for some or all of the loan term.  Lenders use your income to determine whether or not you can afford to make your mortgage payments.  Generally, your new mortgage payment should be less than 28% of your pre-tax income.  Your assets include cash reserves and other savings, lenders want to know you can afford to keep making your mortgage payments if you experience a temporary loss of income.  Debt-to-income ratio requirements vary depending on the size of the down payment.  Most lenders are also looking to see if you’ve been at your job for at least two years, justifying a steady flow of income.  When you are in the process of applying for mortgage financing, you should not make any major changes like changing jobs, because that will influence whether or not you get approved.

Ellie Mae reported that as of October 2018, the average FICO® credit score of a home buyer who financed with a conventional mortgage was 751.  For an FHA loan, the average FICO® credit score was 676.  Most lenders will work with you to find the right loan program to fit your financial profile.  Ask me what we can do to help you secure a mortgage loan. 

Sources: The Motley Fool