When it comes to mortgages and credit scores, there are two really important questions to ask:
â€“What credit score do I need to qualify for a mortgage?
â€“What credit score do I need to get the lowest interest rate on a mortgage?
These different but related questions are important if you are looking to buy a home. And the second question is particularly important. With a high FICO score, you can literally save tens of thousands of dollars in interest over the life of a home loan. So letâ€™s take a look at both questions. And if you donâ€™t know you score, be sure to get you free credit score.
What credit score do you need to qualify for a mortgage?
The first thing to keep in mind is that qualifying for a mortgage involves a lot more than just a credit score. While your FICO score is a very important ingredient, it is just one factor. Lenders also look at your income and level of debt, among other things.
As a rule of thumb, however, a credit score below 640 will make buying a home very difficult. A FICO score below 640 is considered sub-prime. In the past there were mortgage companies that specialized in sub-prime mortgages. Because of the challenges in the credit market over the last year or so, however, sub-prime loans have become difficult if not impossible to obtain.
A FICO score between 600 and 640 is considered fair to good credit. But keep in mind, this range of credit scores does not guarantee you will qualify for a mortgage, and if you do qualify, it wonâ€™t get you the lowest interest rate possible. Still, to buy a home aim for a score of at least 640, recognizing that other factors weigh in the decision and that some banks may require a higher score.
What credit score do you need to get a low rate mortgage?
It use to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops. To give you an idea, the following table shows current rates by credit score and calculates a monthly principal and interest payment based on a $300,000 loan:
FICO Score & 30-year Fixed Rate Mortgage
FICO Score APR Monthly Payment
760-850 4.643% $1,546
700-759 4.865% $1,586
680-699 5.042% $1,618
660-679 5.256% $1,658
640-659 5.686% $1,739
620-639 6.232% $1,844
Of course, the interest rates change daily, but the above table gives you an idea of the importance of a high score when you apply for a mortgage.
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Labels: Credit Score First Time Home Buyer Louisville Kentucky KHC, FHA Loans, FHA Loans Kentucky Housing First time home buyer
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Realistically I believe its fair to say consumers should expect to need a credit score of perhaps as low as 580, 620 for sure qualifies. Put another way, my advice to a consumer is to be cautious getting into a loan product that allows exceptionally low credit scores.
"HUD guidelines say 580."
This is untrue. HUD says the minimum acceptable credit score with 10% down is 500 not 580. The second part about most lenders requiring a 620 may or may not be true but certainly the first part of the answer is false.
This forum should be about accuracy and it's a shame there isn't more of it so consumers have accurate information.
Reference: HUD 4155.1 4.A.1.c Determination of Credit Worthiness and Minimum Credit Score Requirements.