How Mortgage Lenders Determine Your Qualifying Credit Score (2024)

FAQs

How Mortgage Lenders Determine Your Qualifying Credit Score? ›

For the majority of lending decisions most lenders use your FICO score. Calculated by the data analytics company Fair Isaac Corporation, it's based on data from credit reports about your payment history, credit mix, length of credit history and other criteria.

Mortgage lenders often get a single "tri-merge" report that contains your credit reports from each of the three credit bureaus and the associated FICO^® Scores. They might use the middle credit score or, if you're applying jointly with a partner, the lower middle score of the two.

The most commonly used FICO Score in the mortgage-lending industry is the FICO Score 5. According to FICO, the majority of lenders pull credit histories from all three major credit reporting agencies as they evaluate mortgage applications. Mortgage lenders may also use FICO Score 2 or FICO Score 4 in their decisions.

Lenders look at a debt-to-income (DTI) ratio when they consider your application for a mortgage loan. A DTI ratio is your monthly expenses compared to your monthly gross income. Lenders consider monthly housing expenses as a percentage of income and total monthly debt as a percentage of income.

Credit score and mortgages

The minimum credit score needed for most mortgages is typically around 620.

The credit score used in mortgage applications

While the FICO^® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage: FICO^® Score 2 (Experian) FICO^® Score 5 (Equifax) FICO^® Score 4 (TransUnion)

For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.

Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.

Credit Score

For a $300,000 home, you'll likely need a good credit score: 740+: Best rates and terms. 700-739: Slightly higher rates. 660-699: Higher rates, may require larger down payment.

How much house can I afford if I make $70,000 a year? ›

With a $70,000 annual salary and using a 50% DTI, your home buying budget could potentially afford a house priced between $180,000 to $280,000, depending on your financial situation, credit score, and current market conditions. This range is higher than what you might qualify for with more traditional DTI limits.

Request a Free Loan Consultation

This field is for validation purposes and should be left unchanged. To afford a $250,000 house, you typically need an annual income between $62,000 to $80,000, depending on your financial situation, down payment, credit score, and current market conditions.

You can borrow from $1,000 to $100,000 or more with a 700 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

For a $500,000 home, you'll likely need a good to excellent credit score: 760+: Best rates and terms. 740-759: Slightly higher rates. 720-739: Higher rates, may require larger down payment.

You must have a credit score of at least 500. Your DTI must be less than 57%. You must be able to put down a 3.5%-10% down payment. Mortgage lenders will have their own individual qualification standards and requirements.

The credit score required for purchasing a home with no down payment varies based on the loan program and the lender's criteria. Here's a general overview of credit score requirements. VA Loan: Minimum credit score of 620. USDA Loan: A credit score of at least 640 is typically required.

Buying a home is one of the biggest decisions people will make. You've probably kept careful track of your credit score and made sure not to do anything that could lower it. But what about your partner's credit score? If you and your partner decide on a joint mortgage, both of your credit scores will come into play.

Some lenders also only report to one or two credit reporting agencies, which means your credit history could look different from agency to agency. Additionally, your lender might be viewing a consolidated score that draws from all three credit reporting agencies or even using their own in-house scoring model.

Typically, the hard credit pull required to get a mortgage loan will decrease your credit score by about 5 points. Once you actually get the loan, you might have a short-term dip of 15 – 40 points. If you consistently make monthly payments on time, though, you'll likely see your credit score recover and even improve.

740–850: Excellent credit – Borrowers get easy credit approvals and the best interest rates. 670–740: Good credit – Borrowers are typically approved and offered good interest rates. 620–670: Acceptable credit – Borrowers are typically approved at higher interest rates.