Minimum Credit Score for Home Loan Programs

Minimum Credit Score for Home Loan Programs

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Wondering what the minimum credit score is for a home loan? The answer is…it’s complicated!

There is no set minimum credit score to buy a home. Requirements vary depending on the loan program and the lender. Some loan programs will accept borrowers with low and no credit scores. Others require higher scores.

However, your credit score is not the only factor that affects your loan approval. Approval is based on your entire borrower profile! This includes your income, work history, assets, credit history, etc.  If 2 borrowers have the exact same credit score, one may be denied based on their specific risk factors while the other may be approved.

See…it’s complicated!

Minimum Credit Score for Home Loan Programs

Below we’ve compiled the minimum credit score for the most popular home loan programs. It’s important to note, however, that these are the bare minimums that can be accepted. Having a credit score that is higher than the minimum does not mean that you automatically qualify. To find out what programs you qualify for, give us a call at 877-892-8222 or click here to apply online.

FHA

Federally qualified lenders issue FHA mortgage loans. The U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development, insures them. These loans are an attractive option for many borrowers, not just first-time homeowners.

The minimum credit score for a home loan using FHA is 500. Borrowers with scores under 580 will need to have a 10% down payment.

VA

VA Home Loans are available to military personnel and veterans. This includes Reservists and members of the National Guard. Surviving spouses may be eligible in certain situations. Federally qualified lenders issue VA loans, and the United States Veterans Association guarantees them.

The Veterans Administration does not set a minimum credit score; however, lenders do impose their own limits. Some lenders will go down to a 500 credit score. Additionally, some lenders will do loans for borrowers without a credit score.

Conventional

Private lenders offer conventional loans, also called conforming loans. These loans meet the guidelines set forth by Fannie Mae or Freddie Mac.

The minimum credit score for a home loan using a Conventional loan is 620.

USDA

USDA home loans help people living in small towns or rural areas achieve homeownership. The USDA Guaranteed Home Loan program offers many benefits. These include flexible credit guidelines, competitive interest rates, and low monthly mortgage insurance rates.

The minimum credit score for a home loan using USDA is 600. Borrowers with no credit scores may also be eligible.

A note for Borrowers with No and Low Credit Scores

It’s not impossible to qualify for a home loan with a low credit score or no credit score. However, it does make it harder to qualify. If you have a low credit score or you do not have a credit score, lenders will look more critically at other risk factors that you may have. This includes recent late payments, collection accounts, how much money you have in checking and savings, employment history, the time at your current job, etc.

If you do not have a credit score, it means that the credit bureaus do not have enough information about you to give you a score. While there are some options available to borrowers without a credit score, most lenders will require that you provide proof of payment history on “alternative tradelines”. These are lines of credit or utilities that do not report to the credit bureaus. This may include rent, cell phone, electric, cable/internet, car insurance, etc.  Acceptable “alternative tradeline” accounts must meet certain criteria. The account must be in your name, it must be 12 months old, every payment must have been made on time every single month, and proof of payment must be provided on the creditor’s letterhead.

Getting Approved with Low or No Credit Scores

Do you have low credit or no credit? Take these steps to increase your chances of getting preapproved:

  • Make a larger down payment than is required.
  • Have sufficient reserves in checking and/or savings accounts. Reserves are funds that are left over after paying your down payment and closing costs.
  • Have low debt-to-income ratios. This ratio compares your existing debt to your pre-tax income. This includes accounts such as auto loans, student loans, credit cards, etc. Paying down existing debt will improve your debt-to-income ratio.

The best part about credit scores? They aren’t set in stone! It’s never too late to start working on improving your credit.

If our team can’t pre-approve you today, we’ll come up with a custom plan to help you get to where you need to be. There’s nothing to lose, so apply today!

Originally published June 8, 2018, updated June 11, 2020