April 17th, 2013 10:35 AM by Bob Rutledge
Credit scores have become the starting point for anyone seeking to qualify for a new mortgage, it wasn't always this way but today if you don't meet the minimum credit score for a mortgage program you will not get out of the starting gate.
I recently read that the average credit score for the country is 687 and the average credit score in Missouri is 690, but my experience with helping borrowers get home loans every day tells me it may be a bit lower than that.
How does the credit score and a mortgage program work together? For the most part Fannie Mae, Freddie Mac who are the conventional mortgage providers to lenders and FHA, VA, and USDA the governmental mortgage providers do not have a minimum credit score written in their guidelines. But...
The conventional mortgage providers have what is referred to as risked based pricing of mortgages that applies directly to interest rates and mortgage approval. The lower your credit score the higher your interest rate and the less likely you will be approved.All conventional mortgages must receive an automated underwriting approval before moving on to underwriting. The lowest credit score for a conventional approval I have personally received for a mortgage application is a 636, keep in mind that the borrower was providing a 20% down payment.
With conventional mortgages the secret to getting a mortgage approval with a low credit score is to have a large down payment. If you have 20% or more for a down payment you have a chance to get a mortgage with a low credit score. Have less than 20% you will need to raise you credit score, to take advantage of the low down payment programs with conventional, 3% or 5% down, you will need to be at or near the average credit score.
With governmental loan programs, FHA, USDA, and VA, there are no specific credit score minimums either, but that is not to say that individual lenders do not have their own in-house overlays that requires a minimum credit score.
I have noticed that a general across the board statement would be that if you have a 640 or better credit score and need to utilize a FHA, USDA, or VA home loan program then so far you are credit score qualified. These loan programs are not sensitive to down payment, if you have the minimum down payment and required minimum credit score you are in great shape as you move forward toward approval.
Just so you know, FHA has a minimum down payment of 3.5% and USDA and VA have a zero minimum down payment.
I can utilize a 620 credit score for all 3 programs, FHA , VA, and USDA, as long as I can receive an approval from the automated underwriting system. This has been a recent development where I have seen some of the investors relax their credit score requirements, maybe a sign of things to come.
Actually, I can go as low as a 580 credit score for a FHA mortgage but the compensating factors that are asked for of the borrower are very stiff. IF you want to know more about how to get a FHA loan with a 580 or higher credit score click on the link.
If you are considering financing a new home purchase or refinancing your first thoughts should be toward your credit scores, know what your middle score is of the three credit reporting companies. Get a credit report with credit scores. If you do not have the minimum credit scores your first home buying task is to work on getting your scores higher. If you can supply me with a recent credit report with the 3 scores I may be able to provide some insight to what can be done to help improve your scores. You want to get your own credit report, because then you own the report as well you are entitled to that report without an inquiry appearing on your report.