It's recommended that you have a credit score of 620 or more when applying for a conventional loan. If your score is lower than 620, lenders won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly payments. Most mortgage lenders accept FICO scores of 580 or higher for an FHA loan. And you only need a 3.5% down payment to buy a home with this program.
There's no single, specific credit score that automatically qualifies you for a mortgage (though having the maximum score of 850 certainly never hurts). Some problems, such as errors in your credit report, can be fixed relatively quickly and have an immediate impact on your score. If your low credit score is due to late or late collections, cancellations, and payments, the loan will be denied because of “bad credit.” Conventional loans also usually offer the most competitive interest rates and flexible repayment periods, with mortgage terms of 8 to 30 years. However, if you have a higher credit rating, you'll generally qualify for more loan options and lower interest rates.
Bankrate's loan comparison calculator is a useful tool to help you see interest rates on credit ratings. The higher your rating, the easier it will be to qualify for a lower interest rate on a great mortgage. Also note that adding new credit can increase your DTI, which is a crucial factor for mortgage lenders. Often, a mortgage is the most important loan you'll ever take out, so it makes sense for lenders to require a minimum credit rating for mortgages.
USDA Department of Agriculture loans do not have a minimum credit rating established by the federal agency, but lenders usually require a rating of at least 580. Mortgage lenders often use older versions of the FICO model (FICO 2, 4, or 2), but you can track your progress using any type of score. However, if you are retired or not actively working, your lender will ask you for other forms of proof that you can make monthly mortgage payments.
