FICO credit scores range between 300 and 850.
For everyone on the lower end of that spectrum, thereâ€™s still home-buying hope.
According to mortgage software firm Ellie Mae, the average FICO score for approved FHA mortgage applications was 689, and much higher -- at 755 -- for conventional applications.
Government and non-government loans have come with their own minimum credit score requirements. Know the most lenient programs to increase your chances of approval.
Some mortgages are specifically designed toÂ help lower credit applicants get into homes.
No matter what your credit, though, check into all available loan options. You may be closer to qualifying than you think.Click to see today's rates (Apr 30th, 2017)
An appealing quality of an FHA loan is that, unlike conventional loans, FHA backed loans donâ€™t carry "risk-based pricing". This is also known as â€śloan-level pricing adjustmentsâ€ť (LLPA).
Risk-based pricing is a fee assessed to applications with lower credit scores or other less-than-ideal traits.
There may be some interest rate â€śhitsâ€ť for lower credit scores, but they tend to be significantly less than for conventional loans.
For homeowners, this means lower credit scores donâ€™t necessarily always come with higher interest rates.
Although FHA requires a minimum 500 credit score, most lenders won't go that low. And, any score below 580 requires 10% down.
Many lenders require homeowners to have a minimum FICO score of 580 to qualify, with some lenders imposing a higher minimum, such as 620 or 640.Click to see today's rates (Apr 30th, 2017)
VA loans are popular mortgage loans offered to veterans. These loans do not require a down payment, nor any mortgage insurance.
UnlikeÂ FHA, the VA does not impose a minimum credit score requirement.
However, most lenders will want to see a minimum credit score between 580-620 before approving a VA loan.
Similar to FHA loans, though, VA loans donâ€™t have risk-based pricing adjustments. Applicants with low scores can get rates similar to those for high-credit borrowers.
Many homeowners are drawn to this third type of government loan thanks to its zero-down payment requirement.
Most lenders will require a 640 FICO score to qualify for a USDA loan, although some will go down to 580.
As with FHA and VA loans, however, USDA homeowners with a 580 credit score will be more carefully evaluated than those with a higher credit score.Click to see today's rates (Apr 30th, 2017)
Non-government conventional mortgage loans require higher rates and fees for low credit scores.
Fannie Mae and Freddie Mac, the agencies that administer most of the conventional loans in the U.S., charge loan-level price adjustments, or LLPAs.
These fees are based onÂ two loan factors:
As LTV rises and credit score falls, the fee goes up.
For instance, a borrower with 20% down and a 700 credit score will pay 1.25% of the loan amount in LLPAs.
An applicant with a 640 score and ten percent down will be charged a fee of 2.75%.
The majority of lenders will require homeowners to have a minimum credit score of 620 in order to qualify for a conventional loan.
While conventional loans are available to lower credit applicants, the fees could make FHA much cheaper.
Released in March 2015, Freddie Mac's first time home buyer program, Home PossibleÂ®, is helping buyers get into homes at a very low down payment.
Home PossibleÂ® is available for low and moderate income borrowers, and allows for a down payment of just 3%.
To qualify for the Home PossibleÂ® loan with reduced PMI rates, most lenders will require a 620 or better credit score.
Released in December 2015, HomeReadyâ„˘ is a great Fannie Mae loan program for low-to-moderate income borrowers, with expanded eligibility for financing homes in low-income communities.
Unlike Freddieâ€™s Home PossibleÂ® program, you donâ€™t have to be a first-time home buyer to qualify for HomeReadyâ„˘.
In addition to the low down payment option of just 3%, one of the most appealing traits of the HomeReadyâ„˘ program is that it allows non-borrower household memberâ€™s income, regardless of their credit scores.
Most lenders require a minimum of 620 in order to qualify for HomeReadyâ„˘.Click to see today's rates (Apr 30th, 2017)
The qualified mortgage rule, also known as the QM Rule, went into effect in 2014.
The rules associated with QM were set forth by the federal government, and were meant to create safer loans by prohibiting or limiting certain high-risk mortgage products.
Not all mortgage lenders have to follow the QM rule. When lenders donâ€™t sell their loans to investors, they can, for the most part, make up their own rules.
Credit score requirements for non-QM programs can vary, but many lenders offering non-QM loan products will go down to credit scores as low as 500.
Even if you have a lower credit score, you can still get a very low rate and payment in the current interest rate market.
Get a quote now. No social security number is required to start, and quotes come with access to your live mortgage credit scores.Click to see today's rates (Apr 30th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)