If your credit score is 620 or higher and you meet other requirements, you should have no problem getting a mortgage. Credit scores in the 620 to 680 range are generally considered fair loans. There are many mortgage lenders who offer loan programs to borrowers with credit scores in the 500's. This type of loan is the opposite of a government-backed mortgage, so the requirements are generally higher than with FHA loans. In order to qualify for a mortgage, you need to have a credit score of at least 620.
This is considered to be a “fair” score and will give you access to most home loan programs. Additionally, you'll want to have a good debt-to-income ratio and more money in the bank to make a down payment. HomeReady only requires a 3% down payment and a 620 credit score, and the rates charged by private mortgage insurance (PMI) are cheaper than standard conventional loans. Unlike Freddie's Home Possible program, you don't have to be a first-time homebuyer to qualify for HomeReady. However, your credit rating significantly affects how expensive your mortgage can be if you choose to apply for a home loan.
Some lenders may be willing to lend you the money you need based on your current score, but for others, you may need to disburse more down payment if you don't meet your required specific minimum credit score. As mentioned earlier, even a small increase in your interest rate can cost you tens of thousands of dollars over the life of a home loan. Refinancing could help you replace your current mortgage with a new one that has a lower rate and better conditions, once your finances are better. If you can polish your credit report before looking for a mortgage, you're more likely to qualify for the best loan terms and lowest interest rates. Therefore, if your credit rating is too low for a conventional mortgage loan, it might be worth waiting to buy until you can increase your credit rating and lower your borrowing costs. If you want to see where you stand with them so you know exactly what mortgage lenders will see, you'll need to purchase a full FICO report. Track Your Credit, Make On-time Payments, and Get Help Choosing the Right Mortgage Loan for You.
However, a mortgage credit report, obtained by applying with a lender, will give you a better idea of your position as a prospective homebuyer. It is important to note at this point that since conventional loans are borrowed from private lenders, the minimum credit rating required to qualify for a loan actually varies from lender to lender. USDA mortgage loans don't require a down payment and offer interest rates that, on average, are 0.50% lower than conventional loan rates. Your credit score affects both your interest rate and your mortgage payment, so it impacts the amount of housing you can afford. Your credit score is like a GPA for how you have managed different credit accounts throughout your financial life.
