The credit score you need to get a mortgage


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To buy a house, you need to have at least a good credit score, provable income that supports your ability to repay the mortgage and enough money for a down payment. If you’re looking to buy a house soon, here’s what you need to know if your credit needs tender, loving care.

The minimum credit score for a mortgage

Whether you’re buying a home or refinancing one that you already own, most mortgage companies have a minimum credit score requirement. Conventional loans require a credit score of 620. FHA loans have far looser credit requirements, allowing applicants to have scores as low as 600 or even 580.

If you have a mortgage lender that’s willing to accept a credit score of less than 580, you have a diamond in the rough. Most banks want loans that are quicker to the green and are not interested in working with folks who need more attention. Unfortunately, that’s just the truth.

If your credit score is 580, your file will need to pass automated underwriting. That means that any previous debts are going to have to be zeroed by close of escrow. Additionally, in that situation, the debt-to-income ratio is far more important than if you had a higher score. It’s not unreasonable to think that a credit score of 580 would warrant a minimum debt-to-income ratio requirement of 45 percent.

What if your score is too low?

So, what happens when your credit score is below 580 and you’re still looking to purchase or refinance a home? That’s where things get interesting. Income, a down payment and at least two months of mortgage payments in the bank (not to mention equity in your home) would become far more important to have.

Such anchors are called compensating factors in the lending industry. A bank that would do a loan for an applicant who has a credit score of 580 would probably also entertain looking at that person’s compensating factors.

So, when you’re looking for a mortgage and have a credit score of 580 or less, ask the lender what its minimum requirement is. If it’s less than 580, ask the lender if it ever closed a loan for a borrower with a credit score that low and, if so, under what circumstances. As it happens, many banks may be willing to consider lending to applicants with low credit scores.

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