With all the recent changes in the residential mortgage lending environment, the most common question being asked is, “What does my credit score have to be to qualify for $X loan amount?”
The answer will vary based on these three factors:
- Type of Loan Program
- Loan Amount
- Private Mortgage Insurance
The credit score that is utilized is the lowest middle credit score of all borrowers from the three credit rating agencies, TransUnion, Experian, and Equifax.
USDA Home Loan
A USDA Home Loan is one of the most flexible when it comes to credit. You will typically only need a 620 credit score to qualify. However, if you do not have any credit, including no collection you can qualify as well. You can still qualify if your score is under 620 as long as there are no collections or judgments or they have been paid off over 12 months ago, and any Bankruptcy has been discharged at least 3 years. To qualify for the best rate you’ll need a 620 credit score. There is no private mortgage insurance needed on a USDA Home Loan since the loan is guaranteed by USDA. The loan amount is only limited by what you can qualify for. You can borrower up to 100% of the purchase price, plus cover closing costs, depending upon the appraisal.
With a veteran loan, you will need at least a 620 credit score. To qualify for the best rate you’ll need a 700 credit score. The maximum loan amount in most states is $417,000. VA does offer a Jumbo product that allows up to a $650,000 loan amount is a 720 credit score. Since the loan is insured by VA you will not need private mortgage insurance. The maximum LTV is 100%.
With a conventional loan, Fannie Mae (FNMA) or Freddie Mac (FHLMC) you will need at least a 620 credit score. A conventional loan does require private mortgage insurance if you loan to value (LTV) is over 80% of the purchase price. To qualify for the best rate you’ll need a 720 credit score. The maximum loan amount, conforming loan limit, is $417,000. The maximum LTV is 95%.
The minimum credit score to qualify is 640 with some investors requiring a 660 or higher credit score. The maximum loan size is limited by county. The most common loan limit in Indiana is $271,050. To get the best rate you’ll need a 700 credit score. There are no further requirements for mortgage insurance since the loan is insured through the HUD. There will be up-front mortgage insurance premium and a monthly mortgage insurance premium. The maximum LTV is 96.5%.
Super Conforming Mortgage
If your loan amount is larger than the conforming loan limit, $417,000 but under $729,750 then you can qualify for a Super Conforming Mortgage with a 620 credit score. To qualify for the best rate on a Super Conforming Mortgage you’ll need a 720 credit score. You will need private mortgage insurance if your LTV is greater than 80% of the purchase price, the maximum LTV is 90%.
If the loan amount you are looking for is over the Super Conforming loan limit, $729,750, you’ll need a 720 credit score. To qualify for the best rate you’ll need an 800 credit score. Since the maximum LTV is 80%, you will not need private mortgage insurance. The maximum loan amount is $1,000,000 over that you the loan would go to a Private Lender and rates and terms vary widely.
The underwriting standards surrounding private mortgage insurance are becoming increasingly stricter. Any conventional loan with an LTV greater than 80% will require private mortgage insurance. To qualify for private mortgage insurance you will need a credit score of 680, you can sometimes get better pricing on the mortgage insurance if your credit score is over 700. The cost of the private mortgage insurance is typically a monthly amount added to your mortgage payment; however, there are options for the lender to cover the cost through a higher interest rate or discount points, or some combination of the two.