According to data from the most recent Original Understanding Report of Ellie Mae, the average FICO® score on closed loans reached 753 in February. As lending standards have tense lately many are worrying about whether their credit score is strong enough or not to opt for a mortgage. While stricter lending standards could be a challenge for some, many buyers might be surprised by the options that are still available for borrowers with lower credit scores.
The fact that the average American has seen their credit score increase in recent years is a great sign of financial health. As someone’s score grows, they are building a stronger financial future. As more Americans with strong credit enter the housing market, we are seeing a natural increase in the distribution of a FICO® score of closed loans, as shown in the chart below:If your credit score is below 750, it is easy to see this data and fear that you may not be able to qualify for a mortgage. However, this does not always happen. While the majority of borrowers now have a score above 750, more is needed qualifying for a mortgage than just the credit score, and there are still options that allow people with lower credit scores to buy their dream home. Here’s what Experian, a a global leader in consumer and business credit reporting, says:
- Federal Housing Administration (FHA) Loans: “With a down payment of 3.5%, homebuyers may be able to get an FHA loan with a 580-credit score or higher. However, if you can manage a 10% down payment, that minimum goes up to 500. “
- Conventional loans: “The most popular loan type usually comes with a minimum 620 credit score. “
- S. Department of Agriculture (USDA) loans: “Generally lenders requires a minimum credit score of 640 for a USDA loan, although some may go as far as 580. “
- S. Veterans Section (VA) Loans: “VA loans do not technically have a minimum credit score, but lenders will usually charge between 580 and 620. “
Definitely a higher credit score will give you more options and better terms when you apply for a mortgage, especially when lending is as hard as it is now. When you are planning to buy a home, it is imperative to talk to an expert about steps you can take to improve your credit score, so you are in the best position. However, don’t rule yourself out if your score is less than perfect – today’s market is still full of opportunities.
Don’t let assumptions about whether your credit score is strong enough put a premature end to your homeownership goals. Let’s connect today to discuss the best options for you.
Content previously posted in Keep Current Things