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Mortgage

What Is the Minimum Credit Score for a Home Loan?

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If you’re hoping to become a homeowner, your credit score may hold the keys to realizing that dream. Knowing the minimum credit score needed for a home loan gives you a baseline to help decide if it’s time to apply for a mortgage, or take some steps to boost your credit first.

It’s possible to get a mortgage with a score as low as 500 if you can come up with a 10% down payment. Keep reading to learn the minimum credit score requirements for the most common loan programs.

What are the minimum credit scores for home loans?

Your credit score plays a big role in determining whether you qualify for a mortgage and what your interest rate offers will be. A higher credit score means you’ll likely get a lower rate and a lower monthly mortgage payment.

There are four main types of mortgages: conventional loans, and government-backed loans insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA). Conventional loans, which are the most common loan type with guidelines set by Fannie Mae and Freddie Mac, have a credit score minimum of 620. Although some loan programs don’t specify a minimum credit score needed to qualify, the approved lenders who offer them may set their own minimum requirements.

The table below features the minimum credit scores for these home loans, along with minimum down payment amounts and for whom each of the loans is best.

Loan type

Minimum credit score

Minimum down payment

Who it’s best for

Conventional6203%Borrowers with good credit
FHA500-579 with 10% down payment
580 with 3.5% down payment
10% with a score of 500-579
3.5% with a minimum score of 580
Borrowers who have bad credit and are purchasing a home at or below their area FHA loan limits
VANo credit minimum, but 620 recommendedNo down payment requiredActive-duty service members, veterans and eligible spouses with VA entitlement
USDA640No down payment requiredBorrowers in USDA-eligible rural areas with low- to moderate-incomes

What is a good credit score to buy a house?

Meeting the minimum score requirement for a home loan will limit your mortgage options, while higher credit scores will open the doors to more attractive rates and loan terms. A good credit score can also provide you with more choices for home loan financing.

  • 740 credit score. You’ll typically get your best interest rates for a conventional mortgage with a 740 (or higher) credit score. If you make less than a 20% down payment, you’ll pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your home loan.
  • 640 credit score. Rural homebuyers need to pay attention to this benchmark for USDA financing. Exceptions may be possible with proof that the new payment is lower than what you’re paying for rent now.
  • 620 credit score. The bare minimum credit score for conventional financing comes with the largest mark-ups for interest rates and PMI.
  • 580 credit score. This is the bottom line to be considered for an FHA loan with a 3.5% down payment.
  • 500 credit score. This is the lowest credit score you can have to qualify for an FHA loan, but you must put 10% down to qualify.

Annual percentage rates by credit score

Your mortgage rate is a reflection of the risk lenders take when they offer you a loan. Lenders provide lower rates to borrowers who are the most likely to repay a mortgage.

Here’s a glimpse of the annual percentage rates (APRs) and monthly payments lenders may offer to borrowers at different credit score tiers on a $300,000, 30-year fixed loan. APR measures the total cost of borrowing, including the loan’s interest rate and fees.

FICO Score

APR

Monthly Payment

760-8503.011%$1,267
700-7593.233%$1,303
680-6993.410%$1,332
660-6793.624%$1,368
640-6594.054%$1,442
620-6394.6%$1,538
*Based on national average rate data from myFICO.com for a $300,000, 30-year, fixed-rate loan as of May 4, 2020.

As the credit score ranges fall, the interest rates are higher. Borrowers with a score of 760 to 850, the highest range, saw an average monthly payment of $1,267. Borrowers in the lowest credit score tier of 620 to 639 saw their monthly payment jump to $1,538. The extra $271 in monthly payments adds up to an additional $97,560 in interest charges over the life of the loan.

Steps for improving your credit score

Now that you have an idea of the extra cost of getting a minimum credit score mortgage, follow some of these tips that may help boost your score.

  • Make payments on time. It may seem obvious, but recent late payments on credit accounts hit your scores the hardest. Set your bills on autopay if possible to avoid forgetting to pay one.
  • Pay off balances monthly. Try to pay your entire balance off each month to show you can manage debt responsibly.
  • Keep your credit card balances low. If you do carry a credit card balance, charge 30% or less of the available credit limit on each account.
  • Have a mix of different credit types. Mortgage lenders want to see you can handle longer-term debt as well as credit cards. A car loan or personal loan will help demonstrate your ability to budget for installment debt payments over time.
  • Avoid applying for new accounts. A credit inquiry tells your lender you applied for credit. Even if you were applying to get your best deal on a credit card or car loan, multiple inquiries could drop your scores, and give a lender the impression you’re racking up debt.

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Mortgage

Manufactured and Mobile Home Loans Explained

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Buying a mobile home is a more affordable alternative to a traditional site-built home, but mobile home loans can be confusing.

How you finance a mobile home (or manufactured home, as they’re more commonly called today) depends on whether you plan to own the land the home sits on.

Are you buying a manufactured, mobile or modular home?

The terms manufactured, modular and mobile home are often used interchangeably, but there are differences. All of them refer to a home built in a factory or controlled environment and moved to a location of your choice. Unless you’re buying a mobile home that was built before 1976, chances are that you’re actually buying a manufactured or modular home.

Manufactured homes must meet certain standards set by the U.S. Department of Housing and Urban Development (HUD) in 1976. Today, you have considerably more options for manufactured home loans than for mobile home loans.

The table below provides an overview of the construction differences, and manufactured and mobile home financing options for each type of structure.

Type of home

How it’s built

Foundation requirement

Financing options

Manufactured homeBuilt in a factory after June 15, 1976

Moved in sections

Affixed to a permanent chassis
Typically attached to a permanent foundationConventional loans
FHA loans
VA loans
USDA loans
Retail installment contracts
Mobile homeBuilt in a factory before June 15, 1976Not typically attached to a permanent foundationPersonal loans
Chattel loans
Modular homeBuilt in a controlled (factory-like) environment

Same building code standards as site-built homes
Usually attached to a permanent concrete foundationConventional loans
FHA loans
VA loans
USDA loans
Construction-to-permanent loans
Retail installment contracts

Types of manufactured home loans

Whether you need mobile home financing for bad credit or a loan with a low down payment, you have options. Most manufactured home loan programs require you to attach the home to land you own with a permanent foundation, however, some allow financing on rented or leased land.

Conventional manufactured home loan programs

Lenders now offer more manufactured home loan options because the lower cost of factory-made homes gain popularity amid a shortage of affordable housing. Fannie Mae and Freddie Mac created the following programs to help conventional lenders meet the growing demand for manufactured home loans.

Fannie Mae MH Advantage®. Borrowers can choose from a 30-year fixed and 7/1 or 10/1 adjustable-rate mortgages (ARMs) with a down payment as low as 3%.

Freddie Mac manufactured home loans. Similar to the Fannie Mae MH Advantage loan, you’ll have 7/1, 10/1 and 30-year fixed-rate options to choose from, but you’ll need at least a 5% down payment.

FHA manufactured home loans with owned land

Loans insured by the Federal Housing Administration (FHA) can be used to purchase a manufactured home affixed to a permanent foundation on land you own. The home must be at least 400 square feet and be a single-family property.

FHA Title 1 loans for manufactured homes on leased land

You may be able to qualify for a loan insured by the FHA’s Title 1 program if you want to buy a manufactured home and place it on leased land. You’ll need at least a 500 credit score for a 5% down payment. A credit score below 500 will require at least a 10% down payment.

USDA manufactured home loans

If you’re purchasing a home in a rural area, you may be able to buy a new manufactured home with land using a loan backed by the U.S. Department of Agriculture (USDA). In most cases, no down payment is required, but there are income restrictions.

VA manufactured home loans

The U.S. Department of Veterans Affairs (VA) guarantees manufactured home loans made to active-duty military service members, reservists, veterans and eligible spouses. You’ll need at least a 5% down payment to buy a manufactured home, and you’ll have to choose from a 15- to 25-year payoff term, depending on the land and home package you choose.

Chattel loan

You don’t need to own the land your home sits on to get a chattel loan. The word “chattel” refers to personal property you can move, and a chattel loan works much like a car loan. Many banks specialize in mobile home loans that are chattel mortgages.

Retail installment contract

Manufactured home retailers offer installment contracts that allow you to pay the retailer directly, rather than applying with a mortgage lender or a bank. Down payment and closing cost requirements vary depending on the retailer.

Construction-to-permanent loan

Some lenders may offer an option for a short-term construction loan that converts to a permanent loan after the home is assembled and attached to land. The USDA’s no-down-payment construction loan is one example of this type of mortgage.

Minimum requirements for a manufactured home loan

The minimum mortgage requirements for mobile and manufactured home loans vary from program to program. The table below breaks down the most important qualifying guidelines for each type of manufactured home loan.

 Conventional loanRegular FHA loanFHA Title 1 loanUSDA loanVA loanChattel loanRetail installment contract
Minimum credit score620500-579 with 10% down

580 and up with 3.5% down
500 with 5% down

<500 10% down
640No minimum500 with 5% down

< 500
10% down
Varies by retailer
Down payment3% Fannie Mae

5% Freddie Mac
3.5%-10%5%-10%0%0%5%-10%Varies by retailer
Do you need to own land?YesYesNoYesYesNoNo
Permanent foundationYesYesNoYesYesNoNo
Minimum size600 sq. ft.400 sq. ft.400 sq. ft.400 sq. ft.*None400 sq. ft.Depends on retailer
Can home be moved?YesNoYesNot after it’s affixedNot after it’s affixedYesYes
*The manufactured home must be less than a year old to be eligible for USDA financing

Manufactured home loans on owned vs. rented land

Pros of manufactured home loans on owned land

  • You’ll pay lower interest rates. Standard mortgage programs typically offer lower rates than chattel loans if the property is attached to land you own.
  • You can choose longer repayment terms. You’ll have up to 30 years to repay your loan in most cases.
  • You won’t make a separate payment for land rent or lease. Your monthly payment includes the cost of the home and land.
  • You’ll have more title rights as a real estate owner if you default. Manufactured home lenders must follow state foreclosure laws, with strict timelines that allow you to bring payments current and save your home. Personal property repossession laws may allow a creditor to take your home without a court process, similar to when a repossession agent takes back a car.
  • You own both the home and land it sits on. Owning a manufactured home and land means you won’t have to worry about rent increases. Land values typically increase with time, helping you build equity.

Cons of manufactured home loans on owned land

  • You may be required to choose a shorter term. Some loan programs require you to pay off a manufactured home loan faster. For example, if you want to buy land for a manufactured home you already own, the VA requires that you pay it off in 15 years and 32 days.
  • You’ll pay a higher property tax bill. Over time, property taxes usually rise, adding to your monthly payment. However, you may be able to write off the expense if you itemize your deductions.
  • You’ll borrow more. When you buy a manufactured home plus land, you’ll need more money than if you just bought the home. That means a higher payment and closing costs.

How to find manufactured home mortgage lenders

Not all mortgage lenders offer programs for manufactured homes, and manufactured home mortgage rates may vary widely between companies. Ask the mortgage broker or loan officers you speak with about any restrictions on the manufactured home loans they offer.

Here are options to help you find manufactured home financing companies:

  • Use the HUD lender list search page to find FHA-approved lenders in your area.
  • Use the Manufactured Housing Institute’s search tool for a list of lenders.
  • Check out Fannie Mae’s list of manufactured home lenders.

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Mortgage Broker vs. Loan Officer: What’s the Difference?

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When you’re shopping for a home loan, you may wonder about using a mortgage broker versus a loan officer. While both ask the same questions about your financial situation and help you fill out a loan application, their roles are different.

A loan officer offers mortgage options only from the financial institution they work for, while a mortgage broker acts as a matchmaker between you and a number of different mortgage lenders. Learn the key differences and responsibilities of each type of mortgage professional so you can decide which one you want to work with.

What do mortgage brokers do?

The term “broker” refers to someone who negotiates on someone else’s behalf. A mortgage broker works with many lenders to find you loan programs with the best rates, terms and lowest closing costs for your situation, but the broker doesn’t actually lend you money.

The term mortgage broker is often used interchangeably with “loan officer,” but there are very important differences.

“A mortgage broker is a business entity that originates mortgage loans,” said Rocke Andrews, president of the National Association of Mortgage Brokers (NAMB).

In other words, a mortgage broker is a type of mortgage business, while a loan officer is a salesperson paid to give you the information needed to choose a mortgage that fits your needs. However, a loan officer is also licensed as a mortgage loan originator (MLO), which means they may also work for a mortgage broker, Andrews said.

What do loan officers do?

A loan officer (LO) is usually an employee of an institutional bank, credit union or mortgage lender. They review financial documents and can recommend a loan for preapproval to an underwriter who works for a mortgage bank or lender.

A loan officer originates mortgage loans and there are two types: a licensed professional loan originator and a registered loan originator, Andrews said.

Licensed professional loan originators must take extra education, pass a national test and meet the licensing requirements of the states they do business in. Registered loan originators typically work for federally chartered institutions like banks and don’t have to meet the same education and testing requirements as licensed MLOs.

Loan officers offer only the mortgage products of one financial institution. The lenders they work for lend the money, and you’ll typically make payments to the same company after closing.

Pros and cons of working with a mortgage broker vs. a loan officer

In many ways, a mortgage broker and mortgage loan officer perform the same tasks. They each review your loan application and financial paperwork to make sure you meet the minimum mortgage requirements. Here are benefits and drawbacks worth considering when deciding between a mortgage broker and a loan officer.

Pros and cons of working with a mortgage broker

Pros

Cons

You’ll get rates and fees from multiple lenders.

You have to wait for the lender to make the final approval decision.

You won’t have to do all the mortgage shopping yourself.

You may not be approved for special exceptions for a bad credit history.

You’ll have more loan products to choose from.

You may have limited access to down payment assistance (DPA) programs.

You can switch lenders if your loan is denied.

Your broker doesn’t control the approval process and doesn’t lend you money directly.

Pros and cons of working with a loan officer

Pros

Cons

You may get a break on rates and closing costs, depending on your relationship with your bank.

Your interest rate options are limited to the LO’s financial institution.

Your approval will be handled “in house,” meaning the lender can approve your loan and provide money to you directly.

You’ll have limited choices for loan products offered only by the loan officer’s company.

You may get an exception for unique income and financial situations.

You’ll need to start over with a new lender if you’re denied.

Your bank may be approved for more DPA programs.

You’ll contact several lenders on your own if you want to compare multiple offers.

Is it riskier using a mortgage broker vs. a loan officer?

No. Both mortgage brokers and loan officers are considered mortgage loan originators (MLOs), and have to meet strict federal requirements to be paid for helping negotiate mortgage loans.

To become a licensed MLO, a mortgage broker or loan officer must:

  • Pass an FBI criminal history background check.
  • Provide a credit report.
  • Provide proof of their mortgage loan activity to a national database, such as the Nationwide Multistate Licensing System (NMLS).
  • Pass a national mortgage test.
  • Take 20 hours of education courses.

Mortgage broker fees vs. loan officer fees

Mortgage brokers and mortgage loan officers have to follow strict compensation rules set by the federal Truth in Lending Act. Mortgage brokers can’t make more than 2.75% of the loan amount and must pay all of their costs and loan originator compensation out of that percentage, Andrews said.

Banks can make additional income because it’s not counted as part of the charge, but loan originators can’t make more than 2.75% of the loan amount, Andrews added.

Both mortgage brokers and mortgage banks pay loan officers a fixed percentage of the loan amount, although there may be variations, Andrews said.

To protect consumers, all mortgage loan originator compensation has to meet the following federal guidelines:

  • The pay must be based on a fixed percentage of the loan amount.
  • The compensation cannot be based on charging a higher interest rate or adjusting the terms of the loan.
  • Originators can’t receive a fee for referring a client to a business partner, such as a title company or real estate agent.
  • No mortgage originator may be paid by both the borrower and the lender. It must be one or the other.

Where to find a mortgage broker or loan officer

Ask friends or family who recently bought or refinanced their homes for a referral. Your real estate agent is also a good resource for mortgage broker or loan officer referrals. Use a comparison rate site and review offers from three to five mortgage companies.

You can research the background of a mortgage loan originator through these resources:

  • Nationwide Multistate Licensing System (NMLS). The loan estimates you receive within three business days of your application will include the NMLS “unique identifier” of each loan originator. This number is assigned so consumers, employers and regulators can track a mortgage broker’s or loan officer’s professional status online. Visit the NMLS Access Center to look up any licensed or registered MLO across 59 state and territorial agencies in the United States.
  • Consumer Financial Protection Bureau (CFPB). The CFPB publishes consumer complaints and the company’s response for consumers to review on its consumer complaint database.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.