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Personal Loans

Finova Financial Personal Loan Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Finova Financial
APR

18.00%
To
204.00%

Credit Req.

Varies

Minimum Credit Score

Terms

12

months

Origination Fee

Up to $10 per $100 of the loan

SEE OFFERS Secured

on LendingTree’s secure website

Finova Financial personal loan details
 

Fees and penalties

  • Terms: 12 months
  • APR range: 18.00% to 204.00%, varies by state. It’s unclear if these rates include all finance fees.
  • Loan amounts: Varies based on state, vehicle and monthly income
  • Time to funding: As soon as the same day
  • Hard pull/soft pull: Soft Pull to check your rates and terms. Hard pull if you choose to submit a full application.
    Origination fee: Up to $10 per $100 of the loan
  • Prepayment fee: None
  • Late payment fee: Not specified
  • Other fees: $25 credit investigation fee, $75 DMV lien fee, filing fee of $0 to $75 (depending on state), document stamp tax (depending on loan amount)

Eligibility requirements

  • Minimum credit score: As long as you own your car outright and it has enough equity to fund your loan, you should be able to get approval.
  • Minimum credit history: No minimum, but borrower cannot currently be in bankruptcy.
  • Maximum debt-to-income ratio: Not specified.

To secure a personal loan with Finova Financial, one of the most important requirements that applicants will have to meet is the owning of a vehicle. This vehicle must be in the borrower’s name, have a car title that is lien-free and have comprehensive and collision insurance. Borrowers are not required to obtain Finova’s voluntary debt cancellation addendum, but should a borrower not be able to provide proof of insurance, this is mandatory.

In addition to the vehicle requirement, applicants will need to be U.S. citizens who are at least 18 years old and residents of Arizona, California, Florida, New Mexico, South Carolina or Tennessee. They cannot be active-duty service members and must have verifiable income.

Applying for a personal loan from Finova Financial

Applying for a Finova Financial personal loan is simple. The process is fairly quick, and begins with a short form on Finova’s homepage to determine if interested parties prequalify for a loan. At this stage, Finova only requests the applicant’s name, phone number, email and information about their vehicle, including the make, model and mileage.

Upon submission of this information, applicants will be informed of the probability of being approved for a loan. Once the results from the prequalification process are reviewed by the applicant, the application can be completed by logging into their account.

At this point, applicants can request a loan, which will involve their Social Security number as well as details regarding residency, vehicle and requested loan amount. After this, they will be able to schedule a time to speak with a Finova Financial representative. During this call, the representative or specialist will evaluate and review the applicant’s vehicle, monthly income and residency information.

Applicants will then need to send in various documents for verification purposes, including photos of their vehicle. There will also be two forms: one for the lien that will be placed on the title of the vehicle and a power of attorney. They will need to be signed and sent back along with the title for the vehicle. When all signed forms have been returned, borrowers will be able to receive their funds the same day via MoneyGram.

Pros and cons of a Finova Financial personal loan

Pros:

Cons:

  • Poor credit accepted: Bad credit likely won't hold you back from securing a Finova Financial loan as long as you own your vehicle and aren’t in bankruptcy.
  • Prequalification: Applicants can review rates before submitting a full loan application, which may then require a hard pull on your credit.
  • Funding time: Once approved for a loan and all documents and forms are signed and returned, borrowers may receive their funds the same day.
  • Funding and payments via MoneyGram: Loan funds are sent to customers via MoneyGram (which may be inconvenient if you prefer a checking or savings account). Monthly payments can also be made online or at one of more than 30,000 MoneyGram locations.
  • Collateral: Applicants are required to use their vehicle as collateral. The vehicle must have prepaid comprehensive and collision insurance with a deductible of $500 or less. The website doesn’t mention any deductible requirement for California borrowers.
  • Additional fees: There are multiple fees borrowers may have to pay. In addition to an origination fee, borrowers may also be charged credit investigation fees, DMV lien fees and more.
  • Availability: Only residents of Arizona, California, Florida, New Mexico, South Carolina and Tennessee can apply for a loan.

Who’s the best fit for a Finova Financial personal loan?

For those with poor credit but who own their car outright, a Finova Financial CLOC may be a good fit, especially if you need cash right away. Finova may be able to provide funding the same day as your approval. But there are other lenders who offer loans for those with bad credit that don’t require a car title as collateral.

Finova Financial consumer reviews

When it comes to online reputation, Finova Financial has a lot of ground to make up. The four-year-old lender has received 17 consumer complaints in the last three years. It currently has an F rating with the Better Business Bureau and is not accredited with the organization.

Finova Financial earned 3.7 out of 5 stars from customers who reviewed its services on LendingTree (Disclaimer: LendingTree is the parent company of MagnifyMoney).

Finova Financial FAQ

You have to own the vehicle and have a lien-free title to be eligible for a loan from Finova Financial.

You need to be a minimum of 18 years old and have a valid driver’s license.

Currently loans are only available to residents of six states — Arizona, California, Florida, New Mexico, South Carolina, and Tennessee.

Yes, you may be charged an origination fee, a credit investigation fee, a documentary excise tax, or a filing fee.

No. There are no prepayment penalties or fees.

You only have to purchase this addendum to receive a loan if you do not provide adequate proof of required insurance.

Alternative personal loan options

LendingClub

APR

6.95%
To
35.89%

Credit Req.

600

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

1.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates and approvals for people with credit scores as low as 600.... Read More

A loan through peer-to-peer lender LendingClub may be a good alternative to consider. Unlike a Finova Financial personal loan, collateral is not required, and loan amounts range from $1,000 to $40,000.

What stands out about LendingClub is that after checking their rates, applicants may receive more than one loan offer, leaving them to choose the one they believe is the best fit for them. Funding can take up to seven days and there is an origination fee that potential borrowers will want to consider before applying for a loan.

OneMain Financial

APR

18.00%
To
35.99%

Credit Req.

Not specified

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Not specified

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

If you have a credit score below 600, OneMain Financial is one of the few lenders that you can use to get a personal loan.... Read More


Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. The lowest APR shown represents the 10% of loans with the most favorable APR. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes. Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $7,500. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

OneMain Financial offers loans from $1,500 to $20,000. Applicants can check rates prior to completing an application and if everything looks good, they can also apply for a loan online within minutes.

Applicants will have to speak to a specialist in order to secure a loan. They will have to visit a local OneMain Financial branch to have their identity, employment and income verified, as well as their collateral, if it is required for the loan. Having to visit a branch can be a drawback, but an added bonus for borrowers who select this lender is the OneMain Financial mobile app that makes payments fast and convenient.

LendingPoint

APR

9.99%
To
35.99%

Credit Req.

585

Minimum Credit Score

Terms

24 to 48

months

Origination Fee

0.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingPoint is an online lender that targets borrowers with fair credit, and allows borrowing up to $25,000.... Read More

A LendingPoint personal loan may be good for borrowers who have fair credit and need between $2,000 and $25,000. Potential borrowers can check rates prior to filling out an application, and if they are approved for a loan, funds are made available to borrowers by the next business day. An origination fee may be applied, but the process of securing a loan with LendingPoint is quick and simple, which can prove to be helpful when borrowers need funds sooner rather than later.

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.

Michelle Black
Michelle Black |

Michelle Black is a writer at MagnifyMoney. You can email Michelle here

Kristina Byas
Kristina Byas |

Kristina Byas is a writer at MagnifyMoney. You can email Kristina here

Get Personal Loan Offers
Up to $50,000

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Personal Loans

Finance Factory Personal Loan Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

APR

Starting at 5.99%

Credit Req.

680

Minimum Credit Score

Terms

36 to 84

months

Origination Fee

Not specified

SEE OFFERS Secured

on LendingTree’s secure website

Finance Factory personal loan details
 

Fees and penalties

  • Terms: Finance Factory offers personal loan terms of 36 to 84 months.
  • APR range: As low as 5.99%.
  • Loan amounts: Finance Factory offers personal loans ranging from $25,000 - $500,000.
  • Time to funding: Loans are processed in as little as 48 business hours, but 7 to 10 days is average.
  • Credit pull: There will be a soft pull of your credit score when you check your rate online.
  • Origination fee: Not specified.
  • Prepayment fee: None.
  • Late payment fee: Not specified.

Finance Factory offers to connect personal loan applicants with its financial experts to help create a customized borrowing plan. These experts are available by email and phone, and can help guide customers putting together a financial plan that fits their needs.

Unlike some loan marketplaces, Finance Factory does not offer additional perks like a free credit score. However, depending upon the lender Finance Factory matches you with, you might receive additional borrower benefits with your actual loan.

Eligibility requirements

  • Minimum credit score: 650
  • Minimum credit history: Not specified.
  • Maximum debt-to-income ratio: Not specified.

To qualify for a personal loan through the Finance Factory marketplace, you need a credit score between 650 and 800. Per the company, a credit score of 680 or higher is ideal. You will also need to earn or receive $35,000 or more per year in income.

Fortunately, because Finance Factory offers a soft pull pre-qualification feature, you’re able to check your odds of qualifying for a loan and get an estimated rate before formally applying, so there’s no risk to your credit.

Personal loans from Finance Factory are available in all 50 states to applicants 18 years and older who reside in the United States. Finance Factory personal loans are also available to those who are self-employed. It’s important to also note that Finance Factory may call your employer to verify your employment status. It also may verify the income that you report.

Applying for a personal loan from Finance Factory

Applying for a personal loan via Finance Factory is relatively simple and painless. To start an application, you can either call or fill it out online. Upon completion, you’ll be able to schedule a call with a lending specialist to discuss your loan options.

You’ll need to provide Finance Factory with some basic information regarding your personal loan, including:

  • How much you’d like to borrow
  • The purpose of the loan
  • Your contact information
  • Your employment status
  • Estimated credit score
  • Total value of your assets
  • How soon you need the loan
  • Annual salary
  • Housing status (rent, own, mortgage, etc.)
  • Date of birth

Once you input this information, Finance Factory will see if you’re a good fit for the financing offers available through any of its lending partners. If you find a lender you’d like to borrow from, the formal borrowing process may be initiated and the prospective lender may reach out to you to provide necessary identifying documents, such as a driver’s license.

Pros and cons of a Finance Factory personal loan

Pros:

Cons:

  • Low rates. Finance Factory has competitive, low rates for its personal loans. However, these rates are only available to those with the highest credit scores.
  • No prepayment fees. Finance Factory does not charge any prepayment fees for paying off your loan early.
  • Check your rate with a Soft Pull. When applying for a personal loan with Finance Factory, you will be able to compare multiple offers from different lenders without any hard pull on your credit score.
  • Upfront fees will cut into your loan amount. At the time of closing on your personal loan, you will be responsible for any closing costs such as underwriting or funding fees, or loan processing fees.
  • Not the best for short-term financing. While some lenders offer terms as short as 12 months, Finance Factory’s minimum term limit is much longer, which may not be in line with what you’re looking for. However, because there are no prepayment penalties, you can pay off your loan as early as you like without any consequences.

Who’s the best fit for a Finance Factory personal loan?

Finance Factory personal loans may be a good choice if you have a high credit score. Its low rates, which are only offered to those with the best credit, could provide you with relatively low costs for borrowing. It should be noted that your rate is not only dependent on your credit score, but your employment status, annual income, debt-to-income ratio, among other things.

These personal loans may also be attractive if you’re looking to keep your monthly payments to a minimum. Finance Factory offers terms from 36 to 84 months and does not charge any prepayment fees for paying off your loan early. So, you could limit your monthly payment obligation while also allowing yourself to pay off the loan sooner, if you want. For example, if you receive a lump sum or tax refund and want to pay off your debt early, you can do so without penalty.

Depending on your credit score and borrowing history, a Finance Factory personal loan could be a way to lower your APR on your credit card debt. If you can find a lower rate with a personal loan, this can be an effective strategy to pay off your credit card debt and lower your interest rate.

Finance Factory consumer reviews

Overall, Finance Factory has a good reputation. Currently, the company is an accredited member of the Better Business Bureau with an A+ rating.

Finance Factory also has earned 4.7 out of 5 stars based on consumer reviews on LendingTree (Disclaimer: MagnifyMoney is owned by LendingTree). Here are a few examples of real reviews the company has received for both its personal loan product, reviewed above, and its business financing options:

“Everyone was very helpful and the process was made very easy!” wrote Angel from Tomball, Texas. “From start to finish was less than 10 days and I was updated regularly on each step of the process. I would highly recommend using Finance Factory for any loan! I will be using them for any future needs.”

Edward from Traverse City, Mich., said, “For the most part, Everything went pretty smooth. Other than having to do a couple documents over, it went pretty quick.”

Finance Factory FAQ

Finance Factory is a loan marketplace that can connect you with lenders that offer a variety of loans, such as personal loans and a wide array of business funding options.

Finance Factory lending partners like for you to have a credit score of 650 to 800, with a score of 680 or higher considered best.

Finance Factory offers to connect you with lenders who may be willing to loan you between $25,000 – $500,000.

The following documents may be required when you apply for a loan through the Finance Factory marketplace:

  • Credit report (may start with a soft pull)
  • W-2s and pay stubs
  • Personal tax return for self-employed applicants
  • Award letters for applicants who are retired or receive disability

You will need to earn or receive at least $35,000 in annual income to qualify for a loan through the Finance Factory marketplace.

According to Finance Factory, personal loan funds can be used for a wide variety of purposes, including:

  • Credit card consolidation
  • Home improvement
  • Credit improvement
  • Major purchases
  • Business expenses and startup costs
  • Real estate investment

In most cases, no collateral is required from lending partners in the Finance Factory marketplace.

Alternative personal loan options

Marcus by Goldman Sachs®

Marcus by Goldman Sachs®
APR

5.99%
To
28.99%

Credit Req.

Not specified

Minimum Credit Score

Terms

36 to 72

months

Origination Fee

No origination fee

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

Marcus by Goldman Sachs® offers personal loans for up to $40,000 for debt consolidation and credit consolidation. ... Read More


Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans).Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. For New York residents, rates range from 5.99% to 24.99% APR.

A personal loan from Marcus by Goldman Sachs® could be a good alternative to Finance Factory. It advertises a starting interest rate of 5.99% for its personal loans, though this is only for applicants with a great credit score. But the major benefit of this lender is that it does not charge any fees. Currently, Marcus by Goldman Sachs lets people borrow up to $40,000 via its personal loans, with terms of 36 to 72 months.

SoFi

SoFi
APR

5.99%
To
17.67%

Credit Req.

680

Minimum Credit Score

Terms

24 to 84

months

Origination Fee

No origination fee

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

SoFi offers some of the best rates and terms on the market. ... Read More


Fixed rates from 5.990% APR to 17.67% APR (with AutoPay). Variable rates from 5.60% APR to 14.700% APR (with AutoPay). SoFi rate ranges are current as of August 7, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.60% APR assumes current 1-month LIBOR rate of 2.27% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

All rates, terms, and figures are subject to change by the lender without notice. For the most up-to-date information, visit the lender's website directly. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.

See Consumer Licenses.

SoFi Personal Loans are not available to residents of MS. Minimum loan requirements might be higher than $5,000 in specific states due to legal requirements. Fixed and variable-rate caps may be lower in some states due to legal requirements and may impact your eligibility to qualify for a SoFi loan.

If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

SoFi’s personal loans could be a good alternative for your borrowing needs. Its rates start as low as 5.99% APR for those with great credit. You can borrow up to $100,000, and receive unemployment protection, which allows you to defer payments in case you lose your job while paying off your loan. It also provides live chat customer support seven days a week.

Upgrade

Upgrade
APR

7.99%
To
35.89%

Credit Req.

620

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

1.50% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

Upgrade is an online lender that offers fairly priced personal loans for a term of either 36 or 60 months.... Read More.

Borrow anywhere from $1,000–$50,000 with a personal loan from Upgrade. It advertises rates as low as 7.99% on its personal loans, with terms of 36 or 60 months. Upgrade also boasts fast funding, which allows you to have money in your account within one day of providing all the necessary information. In addition to personal loans, Upgrade offers credit monitoring, alerts, and education to customers.

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.

Michelle Black
Michelle Black |

Michelle Black is a writer at MagnifyMoney. You can email Michelle here

Jackson Wise
Jackson Wise |

Jackson Wise is a writer at MagnifyMoney. You can email Jackson here

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Mortgage

What Credit Score Do You Really Need for a Mortgage?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Young Couple Moving In To New Home Together

Love it or hate it, your credit score has a big influence over your financial life. Planning to apply for a mortgage in the near future? Your credit score can make or break your ability to qualify for a home loan.

Because your credit score is such an important part of the homebuying process, it pays to understand how lenders view it.

Credit score requirements by mortgage type

When you’re preparing to purchase a home, one of the first decisions you’ll need to make is which type of mortgage is best for you. The condition of your credit score may come into play when you are making your decision.

Here are the minimum credit score requirements for conventional, FHA, VA and USDA mortgage programs:

Mortgage TypeCredit score
Conventional620
FHA500 (10% down payment required)
580 (3.5% down payment required)
VANo set minimum (entire loan profile reviewed instead)
USDA580 (if eligible for a credit exception)
640 (for automatic approval)

Do lenders abide by minimum credit score requirements?

Under most circumstances, lenders will not issue a mortgage if your credit score falls beneath the minimum thresholds listed above. Why not? The answer lies in the secondary mortgage market.

Because lenders are working with a finite budget, it’s common for them to sell the loans they make to another company. Lenders don’t have unlimited funds to keep granting new mortgages to new customers while they wait 30 years for you to pay back your loan. At some point, the lender would run out of money.

To avoid this issue, lenders routinely package up their loans and sell them on what is known as the secondary mortgage market. Larger companies, such as banks or government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, purchase the loans (and often resell them again to investors).

For a GSE or investor to be interested in buying a loan from a lender, the loan has to meet that entity’s minimum score requirements. If a lender issued you a conventional mortgage at a credit score under 620, Fannie Mae/Freddie Mac wouldn’t be interested in buying the loan later. Instead, the lender would likely have to keep your loan on its books until you paid it off, refinanced or until the lender could find another buyer for it.

Lenders don’t want to be stuck with loans on their books. It limits the future mortgages the company can write. As a result, lenders don’t typically write loans for people who don’t meet minimum score requirements.

When it comes to FHA, VA and USDA loans, minimum credit score requirements are firm. A lender couldn’t issue these loans to applicants with lower credit scores, even if they wanted to.

Lenders might require a higher-than-minimum score

If you’re a potential homebuyer with a credit score close to the cutoff point, here’s a bit of bad news: Some lenders may require even higher scores than those listed above in order to approve your mortgage application.

Many lenders have internal policies known as lender overlays. Such overlays often feature stricter credit score requirements. This means that even if your credit score satisfies a mortgage program’s minimum requirement, it might not be high enough to satisfy every lender.

But why would lenders ask for a higher minimum credit score than is required for your loan type? In the end, it comes down to risk management.

Casey Fleming, veteran mortgage adviser in Silicon Valley and the author of The Loan Guide: How to Get the Best Possible Mortgage, offers some insight.

“Each lender has to do its own risk management/profitability equation. Higher risk means a higher cost of servicing loans when a borrower goes into default, which is much more likely at lower credit scores. Typically, lenders will either offer very good pricing but require very high scores, or they will do the opposite.”

Rick Melville, a certified mortgage planner with 24 years of experience, explains that overlays exist because “many lenders desire a higher credit score threshold to provide safety for their portfolio.”

So, although the FHA minimum median credit score requirement may be 580 on loans with a 3.5% down payment, some lenders might choose not to approve loans unless the borrower’s median score is 640 or higher.

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How your credit score can affect your home loan

Your credit score has the ability to affect more than whether your loan is approved or denied.

  • Your credit score affects how much interest you’ll be charged for your mortgage. Lower credit scores typically equal higher interest rates. Higher credit scores typically equal the opposite.
  • The size of your down payment may be affected by your credit score.
    Lower credit scores could also equal a bigger down payment requirement to qualify for a mortgage. With an FHA loan, for example, you may qualify for a low 3.5% down payment if your credit score is 580 or higher. Yet if your score falls between 500 and 579, you might have to put up 10% instead (if you can find a lender willing to approve your loan application).
  • Your monthly payment can be influenced by your credit score.
    Naturally, if a lower credit score results in a higher interest rate for your mortgage, you can expect to pay a higher monthly payment than you would have been charged otherwise. But that’s not the only way your credit score can influence the size of your monthly payment.If you finance more than 80% of a home’s value, your lender will likely require you to purchase private mortgage insurance (PMI). For conventional loans in particular, the cost of your PMI premium is influenced by your credit score. In other words, borrowers with lower credit scores pay higher PMI premiums.

Good news: Your credit score is not the only factor that matters when you buy a home

You credit score matters a great deal when you want to buy a house. It is not, however, the be-all and end-all of qualifying for a mortgage. Your credit score is just one piece of the equation.

Lenders look at factors beyond credit score to decide whether to approve your mortgage application as well, including

  • Loan-to-value ratio
    Loan-to-value (LTV) ratio describes the relationship between a property’s value and the size of the loan against it. If the home you plan to purchase costs $240,000 but appraises at $300,000, for example, the LTV would be 80% (loan amount divided by appraised value).A larger down payment could also result in a lower LTV ratio. From a lender’s perspective, the lower the LTV, the better.
  • Down payment size
    Most loans will require that you bring a down payment of a certain size to the closing table. If you can put up a larger down payment, however, you might improve your odds of qualifying or secure a better interest rate for your loan.
  • Debt-to-income ratio
    Debt-to-income (DTI) ratio measures how much of your income is used to pay your debts each month. Lenders calculate DTI by adding up your monthly debt payments and dividing them by your total gross monthly income.The more money you pay out monthly to others, the more likely you are to default on a mortgage. As a result, the less you owe (i.e., the lower your DTI), the higher your odds of being approved for a new home loan.Having money in reserve can also make you a more attractive borrower. Reserves are liquid assets you could tap into to make your mortgage payment if needed, such as

    • Checking accounts
    • Savings accounts
    • Retirement accounts
    • Investments (stocks, bonds, mutual funds, CDs, etc.)
  • Current income and employment history
    To qualify for a mortgage, you need to have a steady job and stable income, and you need to be able to prove that you do. When you apply for a mortgage, lenders will review your pay stubs, tax returns, bank statements and other information to assess your level of risk.Your income is also a key component you should consider personally when you’re figuring out how much house you can afford. Try LendingTree’s home affordability calculator to get a better idea of your ideal home price. LendingTree owns MagnifyMoney.

How to prepare your credit for a mortgage

It’s true that it can be incredibly difficult, often impossible, to qualify for a mortgage with a low credit score. But here’s the good news: With hard work and a little patience, credit scores can be improved.

Check out the following tips on how you can work to get your credit score where it needs to be.

Review your three credit reports. Your credit scores are based upon the information found in your credit reports from Equifax, TransUnion and Experian. Unfortunately, despite your creditors and the credit bureaus’ best efforts, credit reporting mistakes can sometimes happen.

If a mistake winds up on your credit reports, it can damage your credit scores whether the information is accurate or not. The only way you can be sure the information on your three credit reports is accurate is to review them yourself.

Federal law gives you the right to get a free copy of your three credit reports every 12 months via AnnualCreditReport.com.

Melville advised, “Pull the credit now if you’re planning to apply for a mortgage any time soon. It can help to know what you’re dealing with in advance.”

Correct errors on your credit reports.

Should you discover errors on your credit reports, federal law gives right to dispute those mistakes with the credit bureaus. According to the Fair Credit Reporting Act (FCRA), when you dispute an item on your credit report you disagree with, it has to be investigated.

If a credit bureau can’t verify the disputed information as accurate, the item in question must be fixed or removed from your credit report entirely, usually within 30 days.

Pay down your credit cards

Reducing your credit card debt might be another effective way to give your credit score a boost. According to FICO, you should aim to keep your balances low on credit cards and other revolving debt.

High outstanding debt can affect your score in a negative way. With credit cards specifically, using a high percentage of your available credit can indicate that you’re overextended and more likely to make late payments. Your credit scores can suffer as a result.

On the flip side, if you pay those balances down, you could be doing your credit scores (and your wallet) a big favor.

What’s next?

If you think your credit may be strong enough to qualify for a mortgage, the next step is to shop around and find the best loan offer available.

Fleming recommends to start by “meeting with an experienced, competent, ethical mortgage adviser before you go shopping for a home.

Even if you’re unsure about your credit scores, speaking with a mortgage professional might be helpful.”

He added that “reasons for low credit scores vary dramatically. Many folks find they actually hurt their scores when they try to improve them. A good mortgage adviser should be able to tell you whether your score is an issue or not, how much of an issue it is, and what would help you the most in bringing your score up (assuming you need to).”

This article contains links to LendingTree, our parent company.

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Michelle Black
Michelle Black |

Michelle Black is a writer at MagnifyMoney. You can email Michelle here