What Credit Score is Needed for a Mortgage?

When it comes to pre-approval, your credit score is one of the most influential factors determining your eligibility for a loan and what rate you will qualify for. Lenders use your credit score as a risk assessment for approval.

Your score is calculated by a combination of scores from the three national credit bureaus: TransUnion, Experian and Equifax. Lenders use your median score of the three, known as a FICO score. FICO scores can range from 300 to 850.

Scores above 740 are considered “top tier” credit and will get you the lowest interest rates. Because your score reflects your lending risk, the lower your score the higher your risk is. Therefore, if your score is low, it is likely you will pay a higher interest rate.

Loans delivered to Fannie Mae require a minimum score of 620 for fixed rate loans and 640 for adjustable-rate loans. If you fall below that, there is still hope for future homeownership. Negative marks on your credit score, such as paying bills late or paying less than the minimum amount due, are removed from your credit report after seven years. In the meantime, making on-time payments and keeping balances low on revolving credit will help improve your score.

But what if you have no credit? No credit is not “good credit”, but there are several options that can be used to make you a candidate for a loan. Forms of non-traditional credit can be used to build a credit history as long as payment history is at least 12 months long and all payments were made on time. Non-traditional credit sources include:

  • Rent
  • Utility bills for gas, electricity or water
  • Phone and cable bills
  • Medical insurance, life insurance, renters insurance and car insurance
  • Child care or school tuition payments

Regardless of where you fall in the realm of credit, it is important to be aware of what your credit score is so you can make the effort to repair or maintain it. When you apply for a line of credit, your credit scores are pulled. Be sure to ask any institution running your credit to give you a copy of your scores for your knowledge.

Looking for more information on buying a home? Our Mortgage 101 Handbook is the ultimate guide for First Time Home Buyers.

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