Improving Credit Scores To Qualify For Mortgage Loans

This article covers tips on improving credit scores to qualify for mortgage loans:

The higher the credit scores, the lower the rates. In this article, we will be covering the following points:

  • What determines mortgage rates
  • Credit scores versus pricing on rates
  • The minimum credit score requirements on loan programs

Not every borrower has quoted the same rate. Mortgage rates are determined by lenders based on the borrower’s and property’s layered risk levels.

Prequalify for a mortgage in just five minutes. 

Pricing Mortgage Rates Based on Layered Risk

What is a tiered risk mortgage rate valuation

Mortgage borrower’s credit scores are the top deciding factor on whether or not they qualify for a certain mortgage loan program. Credit scores is also the determining factor with mortgage rates.

Mortgage Rates priced as follows.

  1. Credit scores
  2. Loan level pricing adjustments based on the risk level of the borrowers and/or the subject property

In this article, we will cover and discuss tips and advice in re-establishing and maximizing credit to qualifying for a mortgage.

Credit Scores Versus Mortgage Rates

The higher the borrower’s credit scores, the lower the mortgage rates. Especially with conventional loans.

With conventional loans, borrowers need a credit score of 740 or higher to get the best possible mortgage rates in the market. Mortgage rates will be higher with every 20 point drop in credit scores. This is especially on conforming loans.

The breakdown of credit scores for conventional loans are

  • 760
  • 740
  • 720
  • 700
  • 680
  • 660
  • 640
  • and 620

Those in the 620 to 640 credit scores bracket will be paying the highest mortgage rates and possibly points on conforming loans. The bare minimum credit score to qualify for a conventional loan is 620.

A 620 credit score is considered a really bad credit score for conventional loans. But homebuyers can qualify for a conventional loan with a 620 score.

Credit Score Requirements on Mortgage Programs

Credit Score Requirements on Mortgage Programs

There are certain minimum credit score requirements to qualify for the various residential mortgage loan programs.

For FHA loans, the minimum credit scores required to qualify for a 3.5% down payment FHA loan is 580. If credit scores are between 580 and 620 the maximum debt to income is capped at 43% debt to income ratios.

If credit scores are at 620 or higher, the debt to income ratio boosts up to 46.9% front end and 56.9% back end DTI to get an approve/eligible per Automated Underwriting System Approval. Sometimes it is worthwhile to try to improve credit scores prior to applying for a mortgage loan in order to get the favorable debt to income ratio caps increased.

Borrowers can qualify for an FHA loan with credit scores between 500 and 579. This holds true as long as they can put a 10% down payment on a home purchase. If borrowers can only put a 3.5% down payment on home purchase via FHA loan, they need to improve credit scores to at least 580.

What Are Credit Scores Required on FHA 203k Loans

FHA 203K loans are acquisition and construction loans all in one.

FHA 203K loans require a minimum of 580 credit scores to qualify. Many FHA 203k Rehab Mortgage Lenders have overlays on credit scores with FHA 203k Loans. Most of them require a 640 credit score.

Gustan Cho Associates is a lender licensed in multiple states with no lender overlays on government and conventional loans. We have no lender overlays on FHA 203k Loans. The Gustan Cho Team only requires a 580 credit score on FHA 203k Home Rehab Loans.

VA Home Loans

The Veterans Administration (VA) does not have a minimum credit score requirement on VA Home Loans.

However, most VA Lenders Has Overlays on credit scores on VA Home Loans. Most VA lenders will require a 620 to 640 credit score by borrowers although VA does not have a minimum credit score requirement. Gustan Cho Associates Mortgage Group has zero overlays on VA Loans.

Compensating factors may be required. To get the best VA loan programs available where there are no overlays or rental verification required, one should have higher credit scores. Gustan Cho Associates can give borrowers tips in Improving Credit Scores To Qualify For Mortgage Loans.

USDA Mortgage Home Loans

USDA loans are an excellent mortgage loan program that offers 100% financing and requires no down payment on behalf of the home buyer.

There is a 2% funding fee of the loan amount which can be rolled into the mortgage loan amount

To qualify for USDA Loans, the mortgage loan applicant needs a 580 credit score and the property needs to be in a designated area deemed rural by the USDA and there are certain household maximum income requirements

The debt to income ratio is more strict than those of other residential mortgage loan programs

USDA loans require a front-end of 29% DTI and 41% back end DTI.

Get a custom USDA mortgage quote now. 

Condotel Mortgage Loans

Condotel mortgage loans are portfolio mortgage loans and the minimum credit score required to qualify for condotel mortgage loans is 680. If borrowers have lower scores, we can help improving credit score to qualify for mortgage loans on condotels.

Jumbo Loans

To qualify for Jumbo Loans, Jumbo mortgage lenders would like to see high credit scores from Jumbo mortgage loan borrowers.

  • Traditional jumbo loans require a 700 credit score.
  • However, with lower credit scores borrowers can still qualify.
  • To qualify for 95% loan to value jumbo loans, you need a minimum of 720 credit scores.

Gustan Cho Associates has NON-QM Jumbo Mortgages with 90% LTV with 680 credit scores. There are quick fixes in Improving Credit Scores To Qualify For Mortgage Loans.

Improving Credit Scores To Qualify For Mortgage Loans: Commercial Loans

How to improve your credit scores to qualify for a mortgage

Most commercial mortgage lenders want to see their mortgage loan applicants have a minimum of 640 credit scores.

Non-QM and Bank Statement Mortgage Loans for Self Employed Borrowers

NON-QM Loans require a minimum of 640 credit scores for 20% down payment home purchase loans.

660 credit scores require a 15% down payment.  Borrowers with a 680 FICO require a 10% down payment. Bank Statement Mortgage Loans For Self Employed Borrowers with a 20% down payment requires a 620 FICO.

5% down payment bank statement mortgage loans for self-employed borrowers require a 720 credit score.

Qualifying for a Mortgage with a Lender with no Overlays

Home Buyers who need to qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151. Or text us for a faster response. Borrowers can also email us at [email protected] Gustan Cho Associates Mortgage Group has no overlays on FHA, VA, USDA, and Conventional Loans. We are available 7 days a week, evenings, weekends, and holidays.

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