Your credit score is just one element that goes into a lender’s approval of your mortgage. Here are some other personal factors that lenders consider when qualifying you for a mortgage.
1. Debt-To-Income Ratio (DTI)
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying off debt. Having less debt in relation to your income makes you less risky to lenders, which means you’re able to safely borrow more on your mortgage.
To find your DTI, divide the amount of recurring debt (including credit cards, student loans and car payments) you have by your monthly income. Here’s an example:
If your debt is $1,000 per month and your monthly income is $3,000, your DTI is $1,000 / $3,000 = 0.33, or 33%.
It’s advantageous to have a DTI of 50% or lower. The lower your DTI, the better chance you have at being offered a lower interest rate.
2. Loan-To-Value Ratio (LTV)
The loan-to-value ratio (LTV) is another factor used to determine how you qualify for a home loan. Your LTV is the loan amount divided by the home’s purchase price.
Here’s an example. Let’s say you buy a home for $150,000, put $30,000 down and take out a mortgage loan for $120,000. Your LTV would be 80%. As you pay off more of your loan, your LTV decreases. A higher LTV is riskier for your lender because it means your loan covers a majority of the home’s cost.
LTV decreases when your down payment increases. Considering the example above, if you take out a $110,000 loan and put $40,000 down ($10,000 more than before), your LTV is now 0.73, or 73%.
Different lenders accept different LTV ranges, but it’s best if your ratio is 80% or lower. If your LTV is greater than 80%, you may be required to pay a form of mortgage insurance. Keep in mind that this varies by loan type. Some loans, like VA loans, may allow you to finance the full purchase price of the house without having to pay mortgage insurance.
3. Income And Assets
Your lender wants to be sure that you maintain a steady income and consistent employment. Lenders often ask borrowers for documents that validate their income, assets and work history. These documents may include recent bank statements, pay stubs and W-2s. The steadiness of your income could affect the interest rate you’re offered.
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
What credit score do you need to get a mortgage? Mortgage lenders typically want to see a score of 620 or better before approving a conventional mortgage. There are government-insured mortgages if your score is lower, and if your score is 760 or higher you'll qualify for the best interest rates.
You typically need at least a 620 credit score to qualify for a conventional loan. Though, the higher your score, the better your chances of getting approved for the best rates.
Yes, you can buy a house with a 600 credit score — but it would be less challenging if your score were higher. A 600 score will not be high enough to qualify for a conventional home loan, so look into FHA loans, which have lower requirements: 500 with a 10 percent down payment, and 580 with a 3.5 percent down payment.
You can get a mortgage with a credit score as low as 620, 580 or even 500, depending on the type of loan. Some mortgage lenders offer bad credit loans with more flexible qualifying requirements but higher costs. Others offer free credit counseling to help you improve your score before applying for a loan.
Suppose you can put 20% down on your $400k home and are otherwise able to qualify for a conventional loan. In that case, you'll probably get some of the lowest monthly payments available – apart from perhaps a VA mortgage.
The portion of your income dedicated to making your house payment – including property taxes, homeowners insurance and any applicable homeowners association dues – should be no higher than 29% of your gross monthly income. You should have a qualifying FICO® Score of at least 640 for the best chance of qualification.
It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly mortgage payments.
However, a credit score of 620 could qualify you for an FHA loan with a rate of 4.125%. This is a 0.75% drop from a score of 610, which could save you over $40,000 in interest payments on a $250,000 home. FHA loan applicants with a credit score of 620 or higher could qualify for down payment options starting at 3.5%.
The FHA loan limits for 2024 allow homebuyers to borrow up to $498,257 for a single-family home in most parts of the country. Those purchasing a home in an area designated as “high-cost” may be able to borrow up to $1,149,825.
If you want to improve your credit score fast enough to buy a house — say, in a few months — the best thing you can do is pay down current debt and avoid opening new accounts.
FHA loans allow borrowers with a credit score of 580 or above to purchase a house with a down payment as low as 3.5% of the purchase price. Borrowers with credit scores between 500 and 579 need at least 10% down. Keep in mind, these are the minimums set by HUD, but lenders may have their own minimums.
So yes, 700 ought to be a good enough credit score to buy a house. In fact, says DiBugnara, “a credit score of 680 or above will likely give borrowers access to 95 percent of financing options available.”
A 750 credit score generally falls into the "very good" range, which shows lenders that you're a very dependable borrower. People with credit scores within this range tend to qualify for loans and secure the best mortgage rates.
Lenders typically seek a FICO score of 700–720, though some may consider scores as low as 680. These loans often necessitate a 10–20% down payment, incorporating home equity as a key part of the borrowing strategy.
Excellent (760-850) – Your credit score will have no impact on your interest rate. You will likely be offered the lowest rate available. Very good (700-760) – Your credit score may have a minimal impact on your interest rate. You could be offered interest rates 0.25% higher than the lowest available.
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