What Credit Score Do You Need for a Mortgage?

Credit score Q&A: “What credit score do you need for a mortgage?”

This is a more complicated question than it appears. You can’t just say, “Oh, you need an 800 credit score.” Or, “As long as you have a 700 credit score you’re fine.”

Mortgages are complicated business, and because they’re offered from so many different companies, and in some cases also via backed by the government (and their guidelines), there are many different scenarios that can play out.

Let’s get the easy ones out of the way first.

For an FHA loan, the minimum credit score is now 500. And to qualify for the signature 3.5% down payment loan, you need at least a 580 credit score.

[Minimum FHA credit score.]

If your credit score is below 580, you’ll need to put 10% down for an FHA loan.

Also keep in mind that individual mortgage lenders have different credit scoring requirements that may be higher than the minimums above. It’s all voluntary folks.

And for the sake of simplicity, credit score means Fico score, not VantageScore or any other scoring model. Mortgage lenders favor Fico scores above all else.

Subprime Mortgage Credit Score

One other somewhat simple rule is that credit scores below 620 are considered “subprime.”

Put simply, this means your credit score will only afford you a subprime rate, which will be significantly higher than the mortgage rates offered to prime customers, or those with credit scores of say 720 and higher.

Also note that subprime lending is harder to come by, so you may be out of luck entirely if your credit score falls below 620. Even if you are approved for a mortgage, you probably won’t be able to borrow as much, meaning a larger down payment will be required.

760 Credit Scores Are Tops for Mortgages

Another general rule in the mortgage industry (at least at the moment) is that a 760 credit score will afford you the best (lowest) interest rate, and also make qualifying a breeze, at least from a credit scoring standpoint.

You may even get a discount for having a credit score this high. So shoot for a 760 if you want to get the best deal on your mortgage.

What’s Behind Your Credit Score?

But like anything else, what’s behind your credit score matters a lot, especially with a mortgage.

The mortgage underwriter (the one who decides if your loan is approved or declined) will go over your credit report with a fine-tooth comb, even if you have a “good credit score.”

They’ll want to see that you can actually support large amounts of debt, and that you’re experience with credit goes beyond a few lousy credit cards.

That’s why taking out auto loans/leases and other significant loans long before applying for a mortgage increases your chances of approval for a mortgage. Think of it as a stepping stone.

Tip: Either way, it is recommended that you check your credit score months before applying for a mortgage to ensure your credit is in great shape.

If it’s not, you’ll need plenty of time to right the wrongs and get back on track.

Good credit has the potential to save you thousands on your mortgage, and may even make or break your approval! So don’t take it lightly!