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Over the last 2 years, credit scores have become more important than ever to your mortgage financing. Not only do all loan programs now have minimum credit scores to qualify, but your credit score also directly affects your interest rate in a big way.
We will first touch on the credit score requirements for each loan program and then we will discuss how credit score affects your rate after that.
Conventional Loans-conventional loans have a minimum credit score of 620. If you are putting down less than 20% the minimum credit score increases to 680.
FHA Loans-FHA loans have a minimum credit score of 640. There are some lenders that offer FHA loans down to 580, but our underwriters will only go down to 640.
VA Loans-VA loans have a minimum credit score of 620.
USDA Loans-USDA loans have a minimum credit score of 620.
We will now briefly touch on how your credit score affect your interest rate.
Typically, the best interest rates are given to people with 740 credit scores and higher on conventional loans, and 720 credit scores and higher for government loans.
If your credit score is below that, you will be paying either higher fees at closing, or a higher interest rate than you would be if your credit score was above that number.
The interest rate or fees will typically get slightly worse as your credit score drops down the scale. It typically works in 20 point increments meaning that the rates or fees would increase at a 700 credit score, and again at a 680, and again at a 660 and again at 640 etc.
As you can see, a couple of points difference in your credit score can make a pretty big difference on your interest rate and lender fees. For this reason it is important to look at your credit report well in advance of getting a mortgage to ensure that you have time to work on any issues, if there are any.
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