When you are looking to buy or refinance a home, it is important to know your credit score. Your credit score helps lenders like Freedom Mortgage understand how you manage your finances and it affects the interest rate we may be able to offer you.
The credit score required to qualify for an FHA loan is often lower compared to other loans. Here are some general credit score guidelines:
- FHA loans: 540 is the minimum credit score typically required.
- Conventional loans: 620 is the minimum credit score often required.
- VA loans: No minimum credit score is required by the VA. Most lenders are looking for a minimum credit score between 580 and 620, however.
- USDA loans: 640 is the minimum credit score typically required.
Note that credit score is just one of the measures lenders use to evaluate your loan application. You need to meet credit, income, and financial requirements to get approved for a mortgage.
Your chances of getting approved for an FHA loan are better if you have a higher credit score. But you can still get approved with a lower credit score, and you may qualify even if you have suffered a bankruptcy or foreclosure.
If you have an existing FHA loan, you may qualify for a streamline refinance, which allows you to take advantage of lower rates with less paperwork and no credit check in many cases.
FHA credit score requirements and down payments
Another advantage of FHA loans is their low down payment requirements. Your credit score can affect how much you have to pay, however. If your credit score is between 540 and 579, you will frequently need to make a 10% down payment. If your credit score is 580 or higher, you can often make a down payment as low as 3.5%. Other FHA loan requirements include:
- Debt-to-income ratio. Lenders frequently want your debt-to-income ratio to be less than 43%. This means that your total debt should not exceed 43% of your monthly income.
- Proof of income. While there are no minimum income requirements, you will need to document you have income sufficient to pay your monthly mortgage bills
- Loan limits. The Federal Housing Administration limits the amount of money you can borrow with an FHA loan to finance a house.
- Mortgage insurance. You will need to pay an upfront mortgage insurance fee of 1.75% of the purchase price of the house. This upfront fee can often be rolled into the total loan amount. In addition, you will need to pay annual mortgage insurance premiums (“MIP”) that typically cost between 0.45% and 1.05% of the loan amount. If your down payment is less than 10%, the annual MIP will last for the life of the loan.