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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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How to Recover From Missed Mortgage Payments

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understanding good faith estimate vs loan estimate
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Can you bounce back from a missed mortgage payment or two? The answer is yes, but there’s work involved. After all, your payment history has the greatest impact in determining your credit score.

Falling behind on your mortgage payments can affect your credit and finances, and you could lose your home to foreclosure. It’s critical to be proactive and not wait until it’s too late to get help.

How missed mortgage payments affect your credit

In most cases, mortgage lenders give you a 15-day grace period before charging a fee — often around 5% of the principal and interest portion of your monthly payment — for late payments. But your credit history typically isn’t impacted until you’re at least 30 days behind on a mortgage payment. At this point, your mortgage servicer may report your late mortgage payment to the three major credit reporting bureaus: Equifax, Experian and TransUnion.

Your credit score could drop by 60 to 110 points after a late mortgage payment, depending on where your score started, according to FICO research. Being 90 days late on your loan could lower your score by another 20 points or more.

It can take up to three years to fully recover from a credit score drop after being a month behind on your mortgage, FICO’s research found. Once you’re three months behind on your mortgage, that time can increase to seven years.

Recovering from missed mortgage payments

Falling behind on your mortgage can be a frustrating and scary experience, particularly if you’re facing the threat of foreclosure. Here are some options to help you get back on track after missed mortgage payments:

  • Repayment plan. Your loan servicer agrees to let you spread out your late mortgage payments over the next several months to bring your loan current. When your upcoming payments are due, you’d also pay a portion of the past-due amount until you catch up.
  • Forbearance. Your servicer temporarily reduces or suspends your monthly mortgage payments for a set amount of time. Once the mortgage forbearance period ends, you’ll repay what’s owed by one of three ways: in a lump sum, a repayment plan or by modifying your loan.
  • Modification. A loan modification changes your loan’s original terms by extending your repayment term, lowering your mortgage interest rate or switching you from an adjustable-rate to a fixed-rate mortgage. The goal is to reduce your monthly payment to a more affordable amount.

Be proactive about getting back on track and reaching out to your lender for help instead of waiting until you get late payment notices. If you think you’ll be behind soon or are already a few days behind, make contact now and review your options.

Extra help for homeowners affected by COVID-19

If you’re behind on mortgage payments because of a financial hardship due to the coronavirus pandemic, you may qualify for a mortgage relief program through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Homeowners who have federally backed mortgages, and conventional loans owned by Fannie Mae or Freddie Mac, can request mortgage forbearance for up to 180 days. They can also request an extension for up to an additional 180 days.

Federally backed mortgages include loans insured by the:

  • Federal Housing Administration (FHA)
  • U.S. Department of Agriculture (USDA)
  • U.S. Department of Veterans Affairs (VA)

Reach out to your mortgage servicer to request forbearance. Even if your loan isn’t backed by a federal government entity, Fannie Mae or Freddie Mac, your servicer may offer payment relief options. You can find your servicer’s contact information on your most recent mortgage statement.

How many mortgage payments can you miss before foreclosure?

Your lender can begin the foreclosure process as soon as you’re two months behind on your mortgage, though it typically won’t start until you’re at least 120 days late, according to the Consumer Financial Protection Bureau. Still, it’s best to check your local foreclosure laws since they vary by state.

Here’s a timeline of how missed mortgage payments can lead to foreclosure.

30 days late

Your lender or servicer reports a late mortgage payment to the credit bureaus once you’re 30 days behind. Your servicer will also directly contact you no later than 36 days after you’re behind to discuss getting current.

45 days late

You’ll receive a notice of default that gives you a deadline — which must be at least 30 days after the notice date — to pay the past-due amount. If you miss that deadline, your servicer can demand that you repay your outstanding mortgage balance, plus interest, in full.

Your mortgage servicer will also assign a team member to work with you on foreclosure prevention options. This information will be communicated to you in writing.

60 days late

Once you’re 60 days late, expect more mortgage late fees, as you’ve missed two payments. Your servicer will send you another notice by the 36th day after the second missed payment. This same process applies for every month you’re behind.

90 days late

At 90 days late, your servicer may send you a letter telling you to bring your mortgage current within 30 days, or face foreclosure. You’ll likely be charged a third late fee.

120 days late

The foreclosure process typically begins after the 120th day you’re behind. If you live in a state with judicial foreclosures, your loan servicer’s attorney will file a foreclosure lawsuit with your county court to resell the home and recoup the money you owe. The process may speed up in nonjudicial foreclosure states, because your lender doesn’t have to sue to repossess your home.

You’re notified in writing about the sale and given a move-out deadline. There’s still a chance you can keep your home if you pay the amount owed, along with any applicable legal fees, before the foreclosure sale date.

Can you get late mortgage payment forgiveness?

If you’ve otherwise had a good payment history but now have one missed mortgage payment, you could try writing a goodwill adjustment letter to request that your servicer erase the late payment information from your credit reports.

Your letter should include:

  • Your name
  • Your account number
  • Your contact information
  • A callout of your good payment history prior to missing a payment
  • An explanation of what led to the late mortgage payment
  • The steps you’re taking to prevent late payments in the future

End the letter by requesting that your servicer remove the late payment from your credit reports, and thank your servicer for their consideration. Print, sign and mail your letter to your servicer’s address.

The letter is simply a request; your servicer isn’t required to grant late mortgage payment forgiveness. If your servicer agrees to remove the late payment info from your credit reports, your credit scores may eventually increase — so long as you continue to make on-time payments.

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5 Ways to Borrow Money for a Down Payment on a Home

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It can be challenging to come up with thousands of dollars for a mortgage down payment. If you don’t have enough savings on hand or if you’re worried about cash flow, you may want to borrow money for a down payment.

Here are six down payment loan options, along with their pros and cons.

5 ways to borrow money for a down payment

1. Borrowing from your 401(k)

You may be able to use funds from your 401(k) as a down payment loan. In many cases, there’s a 10% early withdrawal penalty for accessing money in your 401(k) plan before you reach age 59 ½, but there’s no penalty if the money is used to buy your primary home.

The Internal Revenue Service (IRS) rules allow you to borrow up to 50% of your vested account balance or $50,000, whichever is less. The repayment term for most 401(k) loans is five years, but there’s an exception if the loan was used to purchase your main home. If you default on your loan payments, though, the 10% penalty kicks in.

Pros

Cons

  • You have the opportunity to borrow from your own savings with a 401(k) loan, instead of from someone else.
  • You can avoid an early withdrawal penalty, because the loan is being used for a primary home purchase.
  • You must repay the loan in full by the next tax filing deadline if you leave your job before paying it off.
  • You’ll face a tax penalty if you default on your loan payments.

2. Borrowing from your IRA

If you have an individual retirement account (IRA), you may find it a feasible option to use some of that money toward your down payment.

The IRS allows first-time homebuyers to withdraw up to $10,000 from an IRA to buy, build or rebuild their first home without incurring a 10% tax penalty. If you have a spouse who’s also a first-time buyer, they can withdraw an additional $10,000, also without a penalty. The money is subject to income taxes, however.

You don’t have to repay the money you borrow from an IRA since it’s a withdrawal and not a loan, but it’s wise to replace that money as soon as you can. It was originally earmarked for your retirement, after all.

Pros

Cons

  • You don’t have a loan to repay when withdrawing money from your IRA.
  • You avoid the additional 10% penalty as a first-time homebuyer.

  • You have to pay income taxes on the amount you withdraw.
  • You’re limited to withdrawing $10,000, which means you may have to find additional sources to cover the rest of your down payment.

3. Borrowing from a friend or relative

Some major benefits of borrowing from a family member or friend are:

  • Potentially having a lower interest rate on your loan.
  • Having more flexibility with your repayment term.
  • Not having to go through the scrutiny of a bank or other lender.

Still, a loan from a loved one will count as debt, which affects your debt-to-income (DTI) ratio. Mortgage lenders prefer borrowers with a DTI ratio of 43% or lower, which means that a maximum of 43% of your gross monthly income should go to repaying all debt, including your hypothetical mortgage, according to the Consumer Financial Protection Bureau (CFPB).

Pros

Cons

  • You might be able to snag a low interest rate or a flexible repayment term.
  • You could get access to the money faster than working with a financial institution.

  • You’re putting your relationship at risk if you fail to repay the loan.
  • Mortgage lenders will factor the loan as debt into your home loan application.

4. Borrowing from equity in an existing property

If you already own another home, you could tap your available equity to borrow money for a down payment. This could be through a home equity loan or home equity line of credit (HELOC).

A home equity loan is paid in a lump sum and typically has a fixed interest rate and repayment term. A HELOC is a revolving credit line that you can withdraw funds from as needed, until your repayment period starts. HELOCs often have variable interest rates, but you pay interest only on what you borrow.

Pros

Cons

  • You’ll get a lower interest rate for a home equity loan or HELOC than other types of loans.
  • You’ll avoid private mortgage insurance (PMI) if the amount you borrow is large enough to cover a 20% down payment.

  • Your home is used as collateral. If you stop making payments, you risk losing your home to foreclosure.
  • You lose the equity you’ve built in that property.

5. Borrowing a piggyback loan

A piggyback loan is a second mortgage that acts as a down payment loan. You’d get a first mortgage for 80% of your home’s purchase price, a second mortgage for 10% of the price and make the remaining 10% down payment with your own money.

Pros

Cons

  • You avoid paying for PMI.
  • The interest you pay on a piggyback loan may be tax-deductible.

  • Piggyback loans usually have higher interest rates.
  • You’re repaying two mortgages at once.

Should you use a down payment loan?

Borrowing money to meet your required mortgage down payment can help you achieve your homeownership goal, but there are several considerations to weigh. For instance, any loan you borrow will be included in your DTI ratio calculations — something your mortgage lender cares about as much, if not more, than your credit score.

Additionally, you’re tacking on another monthly debt obligation. If you don’t already have the room in your budget to manage your mortgage payments and repay a new down payment loan, you risk stretching yourself too thin and could eventually fall behind on repaying the loans.

If you do decide to borrow money for your down payment, be sure it helps you qualify for a mortgage instead of counting against you.

Other ways to get a down payment for a house

If borrowing additional money on top of your home loan doesn’t seem like a financially sound decision, consider one of the following options to come up with your mortgage down payment.

  • Ask for a gift from loved ones. If you have a family member or friend who is generous enough to give you a monetary gift, those funds could go toward covering your down payment. Several mortgage programs, including conventional and Federal Housing Administration (FHA) loans, allow down payment gifts. You’ll need to provide a gift letter and other documentation to show who and where the money is coming from, and that it doesn’t need to be repaid later.
  • Apply for down payment assistance. Check with your state or local housing authority for available down payment assistance programs. You may also qualify for closing cost assistance. Look for assistance in the form of a grant or forgivable loan; otherwise, you may have to repay the money you receive.
  • Pick up a side hustle. Provided you can carve out dedicated time, consider getting a part-time job or other side gig — such as driving for a rideshare company or providing specialty freelance services — to earn extra income. Once you do, make it a point to stash away all or most of your earnings for your down payment.

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.