According to data from the most recent Origination Insight Report by Ellie Mae, the average FICO® score on closed loans reached 753 in February. Lending standards have tightened recently, and many are concerned over whether or not their credit score is strong enough. Stricter lending standards could be a challenge, but some buyers may be surprised by the options that are still available for lower credit scores.
The fact that the average American has seen their credit score go up in recent years is a great sign of financial health. As someone’s score rises, they’re building toward a stronger financial future. As more Americans with strong credit enter the housing market, we see a natural increase in the FICO® score distribution of closed loans.
If your credit score is below 750, it’s easy to fear that you may not be able to qualify for a mortgage. However, that’s not always the case. While the majority of borrowers right now do have a score above 750, there’s more to qualifying for a mortgage than just the credit score. There are options that may allow people with lower credit scores to buy their dream home. Here’s what Experian says:
- Federal Housing Administration (FHA) loans: “With a 3.5% down payment, homebuyers may be able to get an FHA loan with a 580 credit score or higher. If you can manage a 10% down payment, though, that minimum goes as low as 500.”
- Conventional loans: “The most popular loan type typically comes with a 620 minimum credit score.”
- Department of Agriculture (USDA) loans: “In general, lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.”
- Department of Veterans Affairs (VA) loans: “VA loans don’t technically have a minimum credit score, but lenders will typically require between 580 and 620.”
There’s no doubt a higher credit score will give you more options and better mortgage terms, especially when lending is tight. I can talk to you about steps you can take to improve your credit score so you’re in the best position possible. Don’t rule yourself out if your score is less than perfect – today’s market is still full of opportunity.
Don’t let assumptions about your credit score put a premature end to your homeownership goals. Contact me today to discuss the options that are best for you.