Your credit score is just one of the factors your mortgage lender will use to determine whether you qualify for financing. The problem is, every lender uses different methods to determine your credit worthiness. So, in some cases, a minimum score is difficult to determine for conventional loans. In other cases, especially when loans are underwritten or insured by government organizations, there are minimum credit scores to qualify.
Acceptable Scores
The score your lender will accept for a conventional loan can be determined by many factors, including your payment history, your salary history, your current wage, your available credit, the scores other lenders are accepting and the current economic climate. Cornett Communications advises that even in tight economic times, a score of at least 640 will get you in the door for financing.
Fannie Mae
Fannie Mae is one of two government-backed mortgage lending houses; Freddie Mac is he other. Independent lenders take many of their cues from what these two organizations do. According to the "Washington Post," Fannie Mae raised its minimum credit score for conventional loans in 2009 from 580 to 620. Even if you have a 20-percent down payment, you can be rejected if your score is below 620. Fannie Mae will also reject a loan if more than 45 percent of your income goes toward paying debt.
Government-Backed Loans
Home loans backed or financed by the Federal Housing Administration and the Veterans Administration have different views of credit scores. FHA recently changed its minimum credit score to 580, which qualifies you for lending programs that require only a 3.5 percent down payment. VA loans are 100-percent financed and set aside for active and retired military, along with their families. There is no minimum credit score to qualify, though a better credit score will get you a better interest rate.
What Your Score Gets You
Your credit score is one of the factors that will determine your mortgage loan interest rate. The better your score, the better your interest rate is likely to be. FICO, also known as the Fair Isaac Corporation, posted the differences in interest rate you may pay, depending on your score. If your score is between 620 and 639—considered a risky score by some creditors—you could pay an interest rate of 5.718 percent on a $300,000, 30-year conventional mortgage. As of mid-August, 2010, If your score is at the high end, 760 to 850, your interest rate could be 4.129 percent on the same loan. A score of 650 may net you a rate of 5.172 percent.
Addressing Your Credit Score
If your credit score won’t allow you to get a home loan now, you can so some things you can to improve your score, which are updated on a monthly basis. Make sure all of your bills are paid on time; late payments drive down your score. Pay down your credit balances; maxed-out credit accounts can also hurt your score. Also, check your credit report on a regular basis for errors. This is one of the easiest ways to improve your score. If you find errors on your report and you can prove they are errors, the credit bureau is obligated to remove them.
References
About the Author
M.C. Postins has been a writer and editor since 1995. His work has appeared in newspapers, magazines and websites across the country, such as the "Charlotte Sun-Herald" and the "Denton Record-Chronicle." He received a Bachelor of Arts degree in journalism from Stephen F. Austin State University.
These government programs are more liberal in terms of qualifying ratios, credit standards and offer higher loan to value limits than Conventional loans. Someone who lacks traditional credit can still obtain FHA or VA financing.