Credit Score Needed For Mortgage On Home Loans
This BLOG On Credit Score Needed For Mortgage On Home Loans Was UPDATED On October 3rd, 2018
What Are The Minimum Credit Score Needed For Mortgage?
Many home buyers, especially first time home buyers , often question what the minimum credit score needed for mortgage is.
- Credit Scores and Income are the two most important criteria used when a mortgage loan originator qualifies a borrower
- Credit Scores and Income determines whether or not borrowers qualify for a home loan
- All mortgage loan programs have minimum credit score requirements
- Minimum credit scores required for a 3.5% down payment home purchase FHA Loan is 580
- Home Buyers with under 580 FICO credit scores can qualify for a FHA Loans
- However, a 10% down payment is required for borrowers with under 580 credit scores
- Home Buyers with credit scores of under 620 FICO may need verification of rent
- Verification Of Rent can only be validated if the renter can provide 12 months canceled checks
- Or if the renter can provide 12 months bank statements
- It needs to be proven that the monthly rental payments are transferred from the borrower’s bank account to the bank account of the landlord
- There cannot be any late rental payments in past 12 months
- If a renter is renting by a registered licensed property management company, then the property management company property manager signing a verification of rent form, or VOR, can be used in lieu of canceled checks and/or 12 months bank statements
- Renters paying their rental payments with cash and getting a cash paid receipt cannot be a valid verification of rent proof
- Cash in the mortgage industry is considered non-existent and does not count
- Any cash deposits to a borrower’s bank account cannot be used as sourced assets
Credit Score Needed For Mortgage On Conventional Loans
Minimum Credit Score Needed For Mortgage for borrowers needing to qualify for a Conventional Loan is 620 FICO.
- Many times, a home buyer may need a Conventional Loan instead of a FHA Loan because of various reasons
- One reason why a home buyer needs a Conventional Loan Versus FHA Loan may be because they are buying a Condominium and the Condo is not FHA Approved
- Conventional Loans accepts Income Based Repayment Plans (IBR) where FHA Loans does not
- You cannot purchase a condominium with a FHA Loan if the condominium complex is not FHA Approved
- You can only purchase non-FHA Approved Condominiums with Conventional Loans
- Other reasons why borrowers can only go with Conventional versus FHA Loans is if they need the maximum Conventional Loan Limit of $453,100
- Maximum FHA Loan Limits in most areas is capped at $294,515 unless the property is located in a high cost area
Borrowers Who Cannot Meet Credit Score Needed For Mortgage
As mentioned earlier, all home loan programs have minimum credit score needed for mortgage.
- FHA requires 580 FICO credit score need for mortgage
- Conventional Loans require 620 credit score needed for mortgage
- VA Loans does not have a minimum credit score needed for mortgage
- USDA normally requires 580 credit score needed for mortgage
- If you do not meet the minimum credit score needed for mortgage, that is fine because there are some quick fixes to boost your credit scores. One great thing about your credit scores is that it can easily be manipulated and your credit scores fluctuate from month to month.
Improving Credit Score Needed For Mortgage On Home Loans
One of the best ways to maximize credit scores is by paying down all of credit card balances where credit card balance is 10% or lower than your credit card limit.
- Maxed out credit cards are one of the biggest reasons why consumers have low credit scores
- Consumers should have three to five secured credit cards with less than 10% balance of their limit
- Consumers with maxed out can increase credit scores by more than 100 FICO points just by paying down all of credit card balances to 10% of the credit limit
Tips And Advice In Increasing Credit Score Needed For Mortgage
Consumers with old outstanding collection accounts and charge off accounts think that by paying off their outstanding collection accounts and charge off accounts will boost their credit scores.
- This is not the case unless it is a recent collection and/or charged off account
- Consumers do not have to pay off outstanding unpaid collection accounts or outstanding charge off accounts to qualify for FHA Loans
- Never pay off an outstanding unpaid collection account or charge off account
- By paying off the prior bad debt, that will re-activate the aged bad debt
- Credit scores will often drop
- This is because the credit bureaus will treat it like it is new debt
- Plus the statute of limitations on your old date will get re-activated and re-start
- If you really need to pay off your bad debts, then negotiate with the collection agency that you are going to do a pay for delete payment
- Pay for delete is when collection agencies agree to delete the derogatory credit items off credit report in lieu of payment of debt
- Otherwise, do not pay off your old collection accounts or charge off accounts
- This is because you do not have to pay off outstanding unpaid collection accounts or charge offs to qualify for a FHA Loan
What If Mortgage Lender Requires You To Pay Off Outstanding Collection Accounts?
There are so many instances where borrowers are told by lender they go to and are told that they need to pay off their outstanding unpaid collection accounts and charge off accounts.
- This is not sound advice and you should not listen to them
- Most bankers are not licensed
- They do not know the FHA Guidelines fully
- Paying off outstanding bad debts will often devastate credit scores
- Charge offs and collection accounts do not have to be paid off to qualify for home loans
- I had a borrower who recently closed on her home purchase
- She went to various different lenders and was told by every single bank and lender she visited that she needed to pay off her second mortgage charge off
- My borrower was told that since the second mortgage charge off had a balance on it, she needed to pay it off
- The loan officer that told her did was definitely incompetent
- This is because most charge off accounts report a balance on the credit report
- You will hardly ever see a charge off account with a zero balance
- For this borrower, she got lucky because she read one of my blogs about getting a home loan with a mortgage charge off
- The second mortgage charge off was at least three years old
- Borrowers can qualify for a FHA Loan after a second mortgage charge off with an outstanding charge off balance
- This holds true as long as the second mortgage charge off account does not have a lien placed on the property
- There is no waiting period after second mortgage charge off settlement date
- Luckily, she called me and we were able to approve her FHA Loan and close her home on time
Borrowers with low credit scores or issues with their credit needing a direct mortgage lender with no lender overlays, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at email@example.com. My team of loan officers and I are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer any questions you may have.