When you go shopping for a mortgage, your credit score will be the first thing that lenders will look at to determine whether to approve your loan or not. Different mortgage loans have different minimum credit score requirements, and it pays to learn all about them. That way, by using your FICO scores as your basis, you can better determine exactly what the type of loan you qualify for:
FHA Loan
A mortgage loan from the Federal Housing Administration (FHA) has the backing of the federal government behind it, making it a great option for borrowers with low credit scores and little money for a down payment. The minimum credit score requirement for FHA loans ranges from 500 to 580, and borrowers can put as little as 3.5 percent down on a home. That said, low down payment borrowers will likely be required to take out primary mortgage insurance (PMI) to protect the FHA in case of default.
VA Loan
Officially, Veteran Affairs (VA) loans do not have a minimum credit score requirement, nor do they require borrowers to make a down payment. Unofficially, many authorized VA mortgage lenders still require at least a minimum credit score of 620, so you’ll have to put in some research time looking for the right lender if you want to qualify for this loan with your bad credit. That said, access to this loan is limited only to eligible current and former military personnel and their spouses.
USDA Loan
You can apply for a US Department of Agriculture (USDA) loan if the home you’re eyeing is located in a rural or suburban community with a population under 20,000. As with VA loans, USDA loans do not have a minimum score and down payment requirement. Even so, USDA lenders will often ask for a credit score of at least 640.
Conventional Loan
Conventional loans do not have the backing of any government agency, although they are insured by government-sponsored mortgage loan companies, the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). They also follow the credit score and down payment guidelines set by the Federal Housing Finance Agency (FHFA). Conventional loan borrowers typically need a credit score of at least 620, and down payment requirements will vary from lender to lender.
Jumbo Loan
As the name implies, jumbo mortgage loans involve large sums of money that exceed the limits set by the FHFA. The higher loan amount means increased risk for lenders, and so jumbo loans have the highest minimum credit score requirement of all loan types at 680. Down payments are also usually more than the industry standard of 20 percent.
Do you have more questions about mortgage loans? Want to know additional details about which loans you’re eligible for? Real estate professional Colleen Meyler can help get answers to your questions and share with you plenty of valuable first-time home buyer NJ tips. She can even teach you how to prepare your credit to buy a home. Whether you’re looking at homes for sale or wanting to sell your home in Marlboro, NJ, make sure to contact her at 732.995.5102, or email her at ColleenMeyler(at)gmail(dotted)com .