Getting approved for a mortgage with a credit score below 640 used to impossible. The good news is that this is no longer the case. You can now get some mortgages with a credit score with as little as 500, which is considered a very bad credit score.
If you are worried about what credit score you need for a mortgage we’ve outlined the lowest scores you’ll need for the most common kinds of mortgages – and highlighted exactly how a bad credit score will affect your mortgage rates. Find out if you have the credit score you need for a mortgage application or if you should look at improving your bad credit rating instead.
How will your credit score affect my mortgage rates
On a $300,000 loan the average mortgage lender will, at the time of writing, offer you an APR of 4.042% and a monthly payment of $1440.00 if you have a credit score of 760 or higher. If you have a credit score of 620 you will be typically offered an APR of 5.631% and a monthly payment of $1728.
This means that the difference between a good credit score and a bad credit score is on average $3,456 dollars per year of the mortgage.
These are just very general ball-park figures and mortgage rates do change daily. To find all the latest rates and up to date information we recommend using Lending Tree that will pool the current rates from multiple mortgage lenders.
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Credit scores for conventional mortgages
If you are looking for a conventional mortgage the lowest acceptable FICO score is 620. A low credit score is seen as an indicator of increased risk of missed payments on the loan. So the lower your credit score is, the higher your mortgage rate will be.
A score of 760 and above is considered to be golden, and will get you the best rates possible. The finance industry divide credit score ratings into increments of 20. This means for every 20 points you drop below 760, there will be increases in interest and mortgage rates.
For a low mortgage, it is best to have a credit score of 720 or lower.
Credit scores for FHA mortgages and other government loans
According to FHA guidelines, credit scores of 580 or higher are authorized for this type of property loan. In general you would also need a down payment of at least 3.5%. However, most banks and mortgage lenders would be looking for a credit score of 600 or higher before approving this type of loan.
Some websites state that FHA mortgages are granted at a FICO score of 500 with a 10% down payment. It is possible to get an FHA mortgage approved with this credit rating, but it is extremely unlikely.
VA mortgage guidelines don’t set a required FICO score, but lenders will typically ask for a credit score of 620 or higher. Again there are claims that you can get a VA mortgage with a score of 600, but your options will be far more limited.
If you have a USDA loan backed by the Agriculture Department you will need a FICO score of 640 or over.
Credit scores for jumbo mortgages
Jumbo mortgages usually fall outside the guidelines of property loans that are covered by government schemes if they are not paid back. Due to the higher risk posed to the mortgage lender they have a higher FICO score requirement. For a jumbo loan, you ideally want a very good FICO score above 760 to get the best mortgage rates.
Other things that may affect your mortgage application
Your credit score is just one thing that will affect your mortgage application. Other things you want to consider are:
- Income
- Level of debt
- Down payment
- Debt to income ratio
- Location of home
- Home price and loan amount
- Amount of savings
If are worried, and want to improve your credit score for your mortgage check out our guide of the best credit repair services to get your dream home for less.
