When you apply for a mortgage loan, your lender will likely check your credit score as part of their initial review process. They might even check it again just before closing, to see if anything has changed.
Most mortgage programs available today have minimum credit score requirements. These minimum scores can range from 600 to 660, depending on the type of loan being used and other factors.
5 Key Takeaways From This Guide
In a hurry? Here are the five most important points covered in this guide:
- Credit score requirements often come from secondary organizations, such as Freddie Mac and the Federal Housing Administration (FHA).
- Conventional mortgage loans (not backed by the government) usually require a 620 or higher. But some lenders might be willing to go lower.
- FHA loans allow borrowers to have a credit score as low as 580 and still qualify for the 3.5% down payment. They are generally the most flexible.
- The VA loan program (for military members and veterans) can also be very flexible when it comes to the borrower’s credit profile, allowing scores down to 550 or even lower.
- You can maintain a good score by consistently paying your bills on time and keeping your credit card balances low relative to their limits.
Key point: The vast majority of mortgage loans generated in the U.S. go to borrowers with credit scores of 600 or higher. A 620 or higher will open up even more financing options. Borrowers with scores below 600 are often limited to government loan programs like FHA.
Credit Score Needed for a Mortgage Loan
Before we go any further, we should review some of the terminology in use here.
- Conventional loan: In a mortgage context, the term “conventional” refers to a home loan that is not guaranteed or insured by the federal government. This term is used to distinguish a “regular” mortgage product from the government-backed programs mentioned below (FHA and VA).
- FHA loan: A type of home loan that gets insured by the government through the Federal Housing Administration (FHA). This program allows borrowers to make a down payment as low as 3.5%, if their credit score is 580 or higher. This makes it popular among first-time buyers, though it’s not limited to that group.
- VA loan: Another type of government-backed mortgage program. These loans are guaranteed by the U.S. Department of Veterans Affairs (VA). This program serves military members, veterans, and certain surviving spouses. VA loans have flexible credit score criteria, when compared to conventional financing.
- Credit score: This is a three-digit number based on the information found within your credit reports. Banks and lenders use credit scores to measure risk. Borrowers with a positive history of repaying their debts tend to have higher scores, which means less risk for the lender. A lower score, on the other hand, usually results from missed payments and represents a higher risk.
Next, let’s take a look at the different loan options and what credit score you might need to qualify.
Part 1: Conventional Mortgage Financing
At a glance: The minimum credit score needed to qualify for a conventional mortgage loan tends to fall somewhere in the low- to mid-600 range. A lot of the lenders we have spoken to set the bar somewhere between 620 or 640, though some might go lower than that.
The first thing to understand is that there is no minimum standard across the entire industry. Mortgage lenders are free to determine their own credit-score requirements and other criteria, as long as they adhere to regulatory guidelines.
As a result, qualification criteria can vary from one bank or lender to the next. This is why personal finance experts usually recommend that you “shop around” for a mortgage loan.
With that being said, most conventional mortgage loans today are going to borrowers with credit scores of 650 and higher. A smaller percentage of loans are going to borrowers with credit scores between 600 and 649. And very few go to borrowers with credit scores below 600.
To gain more insight on this subject, we reviewed reports published by ICE Mortgage Technology. This company provides loan processing and underwriting software to the mortgage industry, which means they have access to a lot of lending data.
Here’s what we learned from one of their more recent reports:
- About 98% of all conventional mortgage loans processed through their software had credit scores of 650 or higher on the FICO scoring scale.
- So the vast majority of borrowers who ended up qualifying for conventional loans had credit scores of 650 or above.
- By contrast, only about 1.59% of borrowers using a conventional loan had a credit score between 600 and 649.
- This shows that it’s possible to qualify for conventional financing with a score lower than 650, but it’s a lot less common.
- Lastly, in the below-600 range, there were hardly any loans being originated. Only 0.06% of conventional mortgages had a FICO number between 500 and 599, according to the ICE report.
These statistics show that borrowers with a 650 or higher stand a much greater chance of qualifying for a conventional mortgage loan. Borrowers with a score that falls between 600 and 649 might have to shop around a bit more, to find a lender. But it’s still doable!
Borrowers with credit scores below 600 (on the FICO scoring scale) might have a harder time qualifying for a conventional mortgage loan. In those cases, borrowers should consider the FHA program as an alternative financing option.
Important: The above figures do not represent the entire mortgage industry, nor do they cover all loan programs. So you should view them as helpful insights rather than the “law of the land.”
Part 2: The FHA Loan Program
The Origination Insight Report mentioned above also reinforced an idea we have known for some time. FHA home loans tend to be more forgiving, when it comes to the borrower’s credit score.
FHA loans are insured by the federal government, through the Federal Housing Administration (part of HUD). This insurance gives lenders an added layer of protection against borrower default, or failure to repay.
As a result, the lenders who offer FHA loans are often more flexible with their credit requirements.
Consider the difference in these statistics:
- Conventional: In the ICE report mentioned above, only 1.59% of conventional home loans had a credit score between 600 and 649.
- FHA: During that same reporting period, nearly 23.67% of FHA loans had FICO scores that fell within the 600 – 649 range.
This shows that the FHA mortgage program is a more popular option for those with lower credit scores. And that’s not surprising, when you consider the government backing associated with that program.
The point being: If you have trouble qualifying for a conventional mortgage in 2024 due to your credit score, you might want to consider using an FHA-insured home loan. And if you happen to be a military member or veteran, you should take a close look at the VA’s program.
Disclaimer: This article is based on current trends and averages across the mortgage industry. But none of this is written in stone. There are exceptions to many of these rules. Every lending scenario is different because every borrower is different. So portions of this guide might not apply to your situation.