With lending standards tightening, many are concerned over whether their credit score is strong enough to qualify for a mortgage. While stricter lending standards could be a challenge for some, many buyers may be surprised by the options that are still available for borrowers with lower credit scores.
Did you know that the average American has seen their credit score go up in recent years? This is a great sign of financial health. As someone’s score rises, they’re building toward a stronger financial future. As more Americans with strong credit scored enter the housing market, we see a natural increase in the FICO® score distribution of closed loans.
If your credit score is below 750, it’s easy to fear that you may not be able to qualify for a mortgage. However, that’s not always the case. While the majority of borrowers do have a score above 750, there’s more to qualifying for a mortgage than just the credit score. Additionally, there are options that allow people with lower credit scores to buy their dream home. Here’s what Experian, a global leader in consumer and business credit reporting, says:
- Conventional loans: The most popular loan type. This typically comes with a 620 minimum credit score.
- Federal Housing Administration (FHA) loans: With a 3.5% down payment, homebuyers may be able to get an FHA loan with a 580 credit score or higher. If you can manage a 10% down payment, though, that minimum goes as low as 500.
- S. Department of Veterans Affairs (VA) loans: VA loans don’t technically have a minimum credit score, but lenders will typically require between 580 and 620.
- S. Department of Agriculture (USDA) loans: In general, lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.
There’s no doubt a higher credit score will give you more options and better terms when applying for a mortgage. When planning to buy a home, speaking to an expert about steps you can take to improve your credit score is essential. That way, you can ensure that you are in the best position possible.
Bottom Line
Don’t rule yourself out if your score is less than perfect – today’s market is still full of opportunity. Don’t let assumptions about whether your credit score is strong enough damper your homeownership goals. Let’s connect to discuss the options that are best for you!