Posted 09/05/2017


7 mortgages with low minimum credit score requirements

Home Buying With Less Than Perfect Credit

Craig Berry

The Mortgage Reports Contributor

All mortgages are not created equal

FICO credit scores range between 300 and 850.

For everyone on the lower end of that spectrum, there’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 to help lower credit applicants get into homes.

From a lender’s perspective, credit scores fall into several categories. Borrowers with “fair credit” can typically get approved, but those with “poor credit” will have a harder go.

No matter what your credit, though, check into all available loan options. You may be closer to qualifying than you think.

Verify your mortgage eligibility (Jan 16th, 2018)

1. FHA minimum credit score

An appealing quality of an FHA loan is that, unlike conventional loans, FHA backed loans don’t carry "risk-based pricing". This is also known as “loan-level pricing adjustments” (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 “hits” for lower credit scores, but they tend to be significantly less than for conventional loans.

For homeowners, this means lower credit scores don’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.

Verify your FHA loan eligibility (Jan 16th, 2018)

2. VA home loan credit score requirements

VA loans are popular mortgage loans offered to veterans. These loans do not require a down payment, nor any mortgage insurance.

Unlike 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 don’t have risk-based pricing adjustments. Applicants with low scores can get rates similar to those for high-credit borrowers.

More about VA home loans.

3. USDA home loans

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.

Read more about USDA home loans.

4. Conventional loan credit scores

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 on two loan factors:

  • Loan-to-value (LTV): the ratio between the loan amount and home value
  • Credit score

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.

5. Home Possible® minimum credit score

Released in March 2015, Freddie Mac's first time home buyer program, Home Possible®, is helping buyers get into homes at a very low down payment.

Home Possible® is available for low and moderate income borrowers, and allows for a down payment of just 3%.

To qualify for the Home Possible® loan with reduced PMI rates, most lenders will require a 620 or better credit score.

Learn more about Home Possible®.

6. Fannie Mae HomeReady™ credit score requirements

Released in December 2015, HomeReady™ is a great Fannie Mae loan program for low-to-moderate income borrowers, with expanded eligibility for financing homes in low-income communities.

Unlike Freddie’s Home Possible® program, you don’t have to be a first-time home buyer to qualify for HomeReady™.

In addition to the low down payment option of just 3%, one of the most appealing traits of the HomeReady™ program is that it allows non-borrower household member’s income, regardless of their credit scores.

Most lenders require a minimum of 620 in order to qualify for HomeReady™.

Learn more about HomeReady™.

7. Non-qualified mortgage (Non-QM) credit rules

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 don’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.

What are today’s mortgage rates?

Even if you have a lower credit score, you can still get a very low rate and payment in the current interest rate market.

Check your eligibility for one of today's credit-friendly mortgage programs.

Verify your mortgage eligibility (Jan 16th, 2018)

Craig Berry

The Mortgage Reports Contributor

With 17 years in mortgage banking, Craig Berry has helped thousands achieve their home ownership goals. Connect with Craig on Twitter or Facebook.

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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2018 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)