AL and FL Mortgage News

Credit Scores - An Originator's Quick Opinion

August 19th, 2015 12:03 PM by Devin Murray

We often get questions from customers inquiring about a mortgage when buying who ask "What does my credit score need to be to buy a home?".  We get this question from many customers, not just first time buyers and it is crucial to educate yourself about.  So here is my brief opinion based on the current marketplace.  Please note that this is subject to change over time and additional product restrictions do apply.  D

To get a 100% USDA loan or a 95% Conventional mortgage you need to have a 640 or better credit score.  There are exceptions on both that allow a score as low as 620.  To get a 100% VA loan or a 96.5% FHA loan, the government is a little more forgiving going as low as a 580 score.  On a case by case basis, FHA will allow a score as low as 530 but require a 10% down/equity or a 90% loan.

It is noteworthy to say that PMI providers and lenders want to see a score of 680 or better.  This benchmark for government loans is lower at 640 or better.  That is the quick and simple answer.

What is generally not well understood by consumers that interest rates (and PMI rate factors) are adjusted (up or down) based on score brackets.  For example lenders provide rates and pricing in the following "buckets": 680-699, 700-719, 720-739, 740-759, 760+.  So all else being equal, someone with a 680 and 699 score would get the same rate pricing and PMI (if applicable).  

Credit scores and protecting it is very important but it is not the only factor affecting rates and PMI.  Down payment (or equity) is typically the second biggest factor in this part of the process. Aside from having an ideal score of 760, Conventional loan pricing is also heavily influenced by down payment.  Similar to score brackets Conventional loans are priced most heavily based on the following "buckets": 97-95.01%, 95-90.01%, 90-85.01%, 85-80.01%, 80-75.01%, and 75% and below.

One last thing...we also get asked about "the highest score" and what that is.  We have seen that lenders offer huge rate incentives and perks to borrowers above a 760 credit score.  Likely because such a small percentage of borrowers has such a high score, most lenders don't have anything special beyond this benchmark.  

If you have further questions on this, please feel free to contact us for further clarification.




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