Along with your down payment and income, your credit score is one of the biggest factors that determines whether you can qualify for a mortgage and how much you’ll pay for the loan. The minimum credit score you need to get approved for a mortgage depends on a few factors, including the amount you want to borrow and the type of mortgage. Before you start looking at Irvine homes for sale, here’s what you should know about your credit score and buying a home.
Credit Score Needed for a Mortgage
Every lender determines the minimum credit score necessary to qualify for a mortgage, but keep in mind your credit is only part of the equation. A lender will also consider debt-to-income, down payment, and other factors during the underwriting process. As a general rule, you’ll need a credit score of at least 620 to get approved for a mortgage, which is about 80 points lower than the national average. The higher your credit score, the more likely you are to be approved for a mortgage and the lower your interest rate. With a credit score of at least 760 to 780, you’ll typically qualify for the best possible interest rates, with little difference if your credit score goes higher.
For example, someone with a credit score of 625 may qualify for a $200,000 loan with a 5.75 percent APR and a monthly payment of $1,168. With a credit score of 675, the APR may be 4.78 percent, with a payment of $1,047. With a score of 785, the APR may be as low as 4.17 percent, with a payment of $975. While this difference may not seem significant at first, the difference builds over the years and may add up to tens of thousands over the life of the loan.
How Loan Level Pricing Works
In the mortgage industry, lenders often use a practice called loan level pricing to determine the interest rate you pay on a mortgage, which means the credit score spectrum of 300 to 850 is divided into 20-point increments. The rate is adjusted based on which tier you fall into, which is why increasing your credit score by only a few points may be enough to boost you into a higher tier with a lower interest rate.
Minimum Scores for Different Loan Types
There are many types of mortgages, from conventional loans to VA and FHA loans. Each loan program typically has its own minimum credit score requirement, but lenders can set their own limits higher. Government-backed loan programs typically have the lowest credit score requirements. The FHA loan program, which is geared toward first-time buyers and those with less than stellar credit, requires a credit score of at least 500–579 with a 10 percent down payment or a score of at least 580 with a down payment of 3.5 percent or more. The VA loan program for military personnel doesn’t have a minimum credit score, but most lenders require a score of at least 620. The threshold of 620 also applies to conventional loans, but lenders may have other requirements at this level, such as low outstanding debt. To qualify for a jumbo loan that exceeds conforming loan limits, you may need a score of at least 720.
Your credit score can make a huge difference in whether you’re approved for a home loan and how much home you can afford, so make sure to work with Irvine real estate agents who are up to date on the most current trends in home finance. The experts at Irvine Residential Living have years of experience in the industry, and they can guide you through every step of the home-buying process. Call one of our knowledgeable agents today at 714-454-6304 to get one step closer to buying your dream home.