Your credit score is an important determinant of whether you will be able to obtain any type of credit. In order for you to meet the qualification requirements, your credit score must fall within a certain range.
Depending on the mortgage loan type you want, the minimum credit score varies. Generally, mortgage loans that are backed by the government tend to have lower minimum credit score requirements, I.E. compared to mortgages obtained through traditional lenders such as commercial banks, building societies and credit unions.
Credit Score Requirements for FHA Mortgages
FHA (Federal Housing Administration) mortgage loans are backed by the US government and the qualification requirements are less stringent than traditional mortgages. In general, a borrower with a credit score of 500 can qualify for an FHA mortgage loan.
However, the down payment required may be as much as 10%. Also, interest rates charged on FHA mortgages are usually higher than other mortgage rates, since the risk is higher.
Although minimum credit score requirements vary from lender to lender, the average minimum credit score required by traditional lenders is about 620. The higher your credit score, the better mortgage terms you will be offered. This includes better rates of interest and lower down payment requirements.
So, if you want the best mortgage terms, you must aim to improve your credit score to 700 or more. Simply put, it takes time to improve your credit score. Therefore, it’s best to start taking steps to improve your credit several months or even years before applying for a mortgage loan.
In short, all your efforts will be worth it as you will receive better mortgage terms if you aim for more than the minimum credit score requirements.
We look forward to seeing your score increase with these tips!