If you're looking to get a mortgage to buy a home, your credit score matters. A lot. If it's good, you should be able to get financing without a problem; if it's bad, you could have a tough time getting a mortgage at all.
So if your credit history is less than stellar, you might be wondering: What's the minimum credit score for a mortgage?
"What I see most lenders do is look for 660 or above," says Theresa Williams-Barrett, vice president of consumer lending and loan administration for Affinity Federal Credit Union. However, lenders vary in their requirements.
Read on to learn more about what the cutoff number means for your home-buying prospects, and how to raise your credit score if necessary.
How your credit score is calculated
These three digits are a distillation of your full credit report -- a document detailing your credit history and how well you've managed your debts. Your credit scores are calculated based on five key aspects of your financial habits:
- Payment history (and whether you've paid on time): 35%
- Amount of debt you have: 30%
- Length of credit history: 15%
- New credit you've taken on: 10%
- Types of credit you have: 10%
Credit scores range from 300 to 850 (a perfect score), but most people fall somewhere in between, which is why lenders and even credit bureaus break credit scores into ranges:
- 740 to 850: good
- 670 to 739: fair or acceptable
- 580 to 669: below average or low
- 300 to 579: subprime
Looking at it from a lender's perspective, where you land on the credit-scoring scale says a lot about how good you'll be at repaying a home loan. That's why lenders set minimum credit scores for a mortgage, and there aren't many exceptions. This is also why it's important to know your credit score before you start shopping for a home -- otherwise, you could be getting your hopes up for a home when your time might be better spent improving your credit score first.
How to find your credit score
You can request a free copy of your credit report online through each of the major credit bureaus -- Equifax, Experian, and TransUnion -- once a year, but it doesn't include your credit score. For a fee, you can get credit scores and access credit reports through the Fair Isaac Corp. (the company that designed the widely used FICO credit-scoring model) to see where you fall.
Once you know your own credit scores, you'll have a good idea of whether you'll be approved for a mortgage. However, while a minimum credit score of 660 probably means you'll get approved for a loan, you won't get the best rates or terms. For instance, you may have to pay a higher interest rate than someone with better credit (scores of 740 or above typically get the best terms).
As such, if your score hovers around the minimum range, you may want to make an effort to boost your score before you start house hunting.
What if your credit score isn't good enough?
If you're nowhere near 660, you may want to take some steps to raise your score by reducing the amount of debt you owe or paying your bills on time. It's not a fast process, so don't expect to see results for at least a few months.
If you don't have time to boost your credit score into a more acceptable range before buying a home, all is not lost. You may still be able to get a mortgage through a government-backed program like those offered by the Federal Housing Administration. The FHA accepts mortgage applicants with scores as low as 580 -- and may even go as low as 500 if you can throw down a larger down payment.
If you (or your spouse) are an active or former military member, you may also qualify for a loan program backed by Veterans Affairs. Such programs can be particularly forgiving on the credit score front, so it's worth checking out if you qualify.
Last but not least, if your credit score is bad, it may make sense to work with a mortgage broker or credit union. Often, small institutions like these are more willing to look at your whole financial picture and work with you if your past mistakes are really in the past.
"Credit unions don't flat-out deny somebody immediately," Williams-Barrett says. "To me, it is the whole picture, not just the score by itself."
To see what your finances might look like with a mortgage, check out the realtor.com mortgage calculator and plug in your income to learn more of what to expect.