This video reflects the perspectives of the Gaylord-Hansen Team at loanDepot. We advise discussing directly with your mortgage expert or lending professional for any advice regarding your particular situation.
Your credit score can be the determining factor on whether or not you will be able to qualify for a mortgage.
In our opinion, your credit score is probably one of the most significant 3-digit numbers that will follow you around for life. If you take care of your 3-digit number, you can save tens of thousands of dollars over your lifetime, not only by paying a lower interest rate for your mortgage, but also by obtaining lower interest rates on car loans, credit cards, personal loans, insurance rates, etc.
Every loan program carries different credit score guidelines. We will talk about the basic parameters for each type of loan. While there are always variances, this will give you a general idea of what to expect.
Conventional loans make up approximately 65% of all mortgage loans obtained in the United States. The minimum credit score guideline is a credit score of 620. There are other factors that play into qualifying, such as loan-to-value ratios and your qualifying debt-to-income ratios. Your credit score is just a piece to the puzzle. However, a minimum score of 620 will allow you to play the game.
The Fair Housing Authority, a.k.a. FHA, is considerably more lenient on credit scores than conventional loans. The minimum credit score to be considered is 500, though getting a mortgage would still be very tough at this level and would likely require a higher down payment than the typical 3.5%. The minimum credit score to make a 3.5% down payment is 580. However, many lenders will put an “overlay” onto the FHA guidelines and increase their credit score requirement to 600 or 620 to reduce their risk on the loan. If you are shopping for a mortgage and an originator tells you the minimum credit score is 620, make sure to call additional lenders to find one that does not have an overlay.
VA loans do not have a minimum credit score requirement. The VA is the most lenient when it comes to qualifying and considers an overall budget view rather than focusing just on credit. While credit is still a factor and helps a lender determine the likelihood of you paying your mortgage on time, other factors can help overcome poor credit or no credit at all. To qualify for a VA home loan, you would have to currently be serving for or retired from one of the five branches of the military.
Jumbo loans are the most strict when it comes to credit scores. The primary reason is these loans are backed by any federal agency. These loans are traded on Wall Street, and the investors are looking to mitigate risk. As a general rule of thumb, a minimum credit score of 680 will allow you to play the game. As your credit score goes up above 700, more programs and lower rates become available.
Credit is a game. Simply put, those who know how to play the game win the game of credit and don’t pay unnecessarily higher costs to obtain credit. We would love to help you learn how to play the game of credit. Sometimes a minor tweak through a credit simulator can be the difference between being a homeowner and being a renter.
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