Mortgage and Real Estate Blog

head_left_image

Credit scores and how they affect mortgage loan approval

Minneapolis / St Paul, MN:  When buying a home, your credit matters - a lot. While credit scores alone don't get you a home loan approval, credit scores are one of the most important factors in the loan approval decision.  With places like Credit Karma, and being getting your credit score with your credit card statement, most people have a pretty good idea of where they scores average. 

But how does that score correlate to mortgage loan approvals, and what credit score do you need for loan approval?

What Credit Scores Mean In Mortgage Approval

Understandably, the better your credit score, the more likely you’ll get approved for a loan, and the more options you’ll have. Mortgage loans still look at many other things, including debt-to-income rations, job stability, size of down payment, past bankruptcies and foreclosures, etc.

I am asked on a regular basics what is the lowest score we accept for FHA, or conventional loans. Review the charts below to get an idea.

Credit score factors

Standard Conventional Loan Scores

  • 740 score and higher = Access to all program options, and the best rates in the market
  • 720 – 739 score = Access to all program options, and maybe a slight increased rate (.125%)
  • 700 – 719 score = Access to most program options, and maybe a slight increased rate (.25%)
  • 680 – 699 score = Some higher risk program options disappear, and a slight increased rate (.375%)
  • 640 – 680 score = All higher risk options go away, and a bigger increase to interest rate (.50%)
  • 620 – 639 score = Very few lenders offer loans in this range
  • 619 or less = Denied

FHA and VA Loan Scores

  • 640 and above = Generally approved, and the best rates available
  • 620 – 639 = Lots of lenders don’t offer below a 620 score, and interest rate slightly higher
  • 580 – 619 = Huge amount of lenders no longer offer FHA or VA loans at this score level, and rates .50% higher
  • 500 – 579 = Very limited number of lenders offer these loans. Very hard to get approved. Minimum down payment jumps to 10% for FHA loans.  Rate easily .50% higher or more.

Other factors also come into play, for example, most down payment assistance programs are not available with credit scores below 640.

SUB-PRIME LOANS

Yes, very bad credit sub-prime loans do exist.

Recen't major credit issues, like bankruptcy and foreclosure, or just straight up bad credit does not necessarily prevent you from buying a home.  Generally speaking, expect to need at least 10% for down payment, and commonly 20% or more down is needed. Expect to pay a higher interest rate. How high depends on your credit score.

Do not expect miracles. For example, I just recen't have a client inquiry about a sub-prime loan who has a lot of recen't late mortgage payments over 120 days old. This person whas denied.

If your score is below 500, expect a denial.

THE BOTTOM LINE

Clearly credit is important in the mortgage loan approval process. It is always best do do everything possible to improve credit before applying for a home loan.

 

Mortgage broker in MN, WI, SD

Ready to apply for a home loan?  For home mortgage loans in MN, WI, and SD, just click here to get started. If in another state, we suggest contacting a local mortgage broker in your area for the best deals and options.

Comment balloon 0 commentsJoseph Metzler • September 04 2018 04:07PM
Credit scores and how they affect mortgage loan approval
share
Minneapolis / St Paul, MN: When buying a home, your credit matters - a lot. While credit scores alone don't get you a home loan approval, credit scores are one of the most important factors in the loan approval decision. With places like Credit… more
The Digital Mortgage Hype
share
The Digital Mortgage Hype It is 2018. The number of people who physically step into a bank or mortgage lender to do a home loan application is dwindling everyday. The vast majority of people now complete an online loan application on a desktop… more
Lender credits reduce your out-of-pocket costs
share
Minneapolis, MN: The biggest challenge for most home buyers, especially first time home buyers, is coming up with the required down payment. While most people understand down payment, they are shocked to learn their are mortgage closing costs… more
VA loan myths dispelled
share
Minneapolis, MN: VA home loans are one of the greatest benefit to our U. S. Military personal that most vets will ever use. Dispelling VA loan myths that prevent them from using their benefits is therefore very important. VA loan Myth 1): All… more
Average mortgage rates dropped!! But did they really?
share
Minneapolis, MN: Headlines are screaming Average mortgage rates dropped. Wow, super cool. Especially if you are actively in the home purchase or refinance market. Unfortunately, just like so many other things, the devil is in the details. -------… more
Use a gift for down payment
share
Minneapolis, MN: Looking to purchase a home in the near future? The lack of down payment is a big hurdle for many people. But did you know you can use a gift for down payment? Most loan programs allow for a gift for either some, or all of your… more
Tips for MN First Time Home Buyers
share
Minnesota First-Time Home Buyer Tips Minneapolis, MN: Being a first time home buyer and buying your first home is an exciting time. There is no reason to be worried, and here are a few tips to help guide the way. STEP 1: Find a lender - Get Pre… more
Is Your Credit Score really your Credit Score?
share
Many people get their credit score from places like Credit Karma, and off their credit card statements. But are these your real credit scores? The answer is YES and NO Yes, they are a real credit score, but you may get a very different score when… more
Can you get pre-approved in 10 minutes on your cell phone?
share
The danger of automated mortgage pre-approvals via your cell phone Can you get pre-approval in 10 minutes on your cell phone? Yes. Should you? Probably not. It's 2018 as I write this, advancements to our lives, along with instant gratification is… more
Why fall home buying may be better
share
Minneapolis, MN: People buy homes all year around, but especially in colder climates, home sales numbers falls in the fall and winter months, then picks up dramatically in the spring. Fall and Winter are great times to buy a home. While coming out… more