If you are hoping to become a homeowner, you will very likely need to start by applying for a mortgage. And, for better or for worse, that usually means going through a mortgage application process during which lenders will consider a variety of different factors.
The mortgage application process is very comprehensive—in many instances, if your application is lacking in one area, you may be able to make up for it by being truly exceptional in another (such as being able to make a much larger down payment). However, in most cases, your credit score will play a major role in whether or not you are able to secure a mortgage.
Your mortgage is likely the largest loan you’ve applied for in your life. By having a good credit score, you will be able to demonstrate to potential lenders that you have a history of paying your debts in full and on time.
However, we understand that your credit score might be less than perfect. A single missed payment, collection, or some other seemingly small credit issue can dock your score by dozens of points and make it much more difficult to apply for a mortgage.
Keeping this in mind, you might be wondering—what is the lowest credit score you can have and still secure a mortgage?
There is No “Universal” Minimum—
But You’ll Want to Raise Your Score
As suggested, there is no “universal” rule that applies to every single borrower, but a 580 is a minimum typically seen. Most mortgage lenders will look at many different factors, including your monthly income, your debt-to-income ratio, your current financial assets, and the down payment you are currently able to offer. If every factor other than your credit score is looking pretty good, then securing a mortgage is something that might still be within reach. When there are multiple people applying for a mortgage (such as a married couple), the situation might also change.
Still, when you are applying for a conventional mortgage—one that is not issued by the government and conforms to a few basic standards—you’ll probably want to have a credit of at least 620. Though you can find some exceptions to this rule of thumb, there is no denying that once your score drops below this level, securing a mortgage (especially for a more expensive property) will probably be more difficult.
Depending on your current situation, you might also be able to apply for a non-conventional mortgage—such as those that are offered by the government. The VA, FHA, USDA, and other government agencies offer a variety of programs that can help people with limited or no credit history secure a loan.
Even when applying for a government-backed mortgage, you’ll still want to make sure your credit score is as high as it can possibly be. In most cases, your credit score will not only affect whether you are able to secure the mortgage, to begin with, but it will also affect other components of the loan as well, such as your interest rate and corresponding monthly payments.
Tips for Quickly Raising Your Credit Score
If you are planning on applying for a mortgage in the near future, you will want to do everything you can to improve your score. Even raising a very good score—such as 750—by 50 points can potentially help you save thousands of dollars over time.
In many cases, there will be a lot of things you can do to improve your credit score. Begin by taking a close look at your credit report to check for any errors (which can be disputed through the credit bureaus) and see where all of your accounts currently stand. Make sure that all of your accounts are “current” and that all outstanding payments have been made. You should also pay off any collections or negative marks on your report, which can have a long and lasting impact. However, do not pay down any accounts that you have the legitimate ability to dispute.
Additionally, you should pay down all credit balances as much as you possibly can—even if this means the down payment you end up making will be slightly smaller, the positive impact this will have on your credit scores will likely be worth it.
If, after taking actions to improve your credit score, you are still unable to get your credit score to where you want it to be, you still might have some options remaining. For example, getting a co-signer for your mortgage will make your personal credit score have a smaller impact. Be sure to ask your prospective mortgage provider if they have any additional recommendations.
There’s no way around it—your credit score will usually affect your mortgage application. By taking actions to improve your score, you can increase the likelihood of securing a mortgage and possibly help secure a lower interest rate.
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