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Minimum Credit Score Requirements by Loan Type

Minimum credit score requirements for mortgages vary by loan program and are set at both the agency level (Fannie Mae, FHA, VA, USDA) and the individual lender level through overlays. Conventional loans generally require 620, FHA requires 580 for 3.5% down or 500 for 10% down, VA has no official minimum but lenders typically require 620, and USDA targets 640 for automated approval.

Key Takeaways

  • Conventional conforming loans require a minimum credit score of 620 for most programs, with higher scores receiving significantly better pricing through reduced LLPAs.
  • FHA offers a two-tier structure: 580+ for 3.5% down payment, 500-579 for 10% down payment. Below 500 is ineligible.
  • VA has no official minimum score, but lender overlays typically set the floor at 620. Shopping multiple VA lenders is essential for borrowers with lower scores.
  • USDA requires 640 for automated underwriting approval. Manual underwriting may be available below 640 with compensating factors.
  • Jumbo loans typically require 700-720+ because they carry more lender risk without agency backing.
  • Lender overlays can set minimums higher than agency guidelines, so a rejection from one lender does not mean the program itself is unavailable.
  • Credit score affects not just eligibility but also pricing: higher scores result in lower interest rates, lower mortgage insurance premiums, and reduced loan-level price adjustments.

How It Works

Agency Minimums vs. Lender Overlays

Agency guidelines establish the floor requirements that any lender must meet to sell or insure a loan through that program. For example, Fannie Mae’s published minimum credit score for a standard conventional loan is 620. Any lender can choose to follow this exact minimum, but they can also impose overlays that require 640, 660, or any higher threshold. They cannot go below the agency minimum.

Overlays exist because lenders bear risk beyond what the agency guarantee covers. If a loan defaults and the lender did not properly verify eligibility, the agency may require the lender to repurchase the loan. Lenders with conservative risk profiles set higher minimums to reduce this repurchase exposure. Large wholesale lenders and correspondent aggregators often have the most competitive overlay policies, while smaller retail lenders may be more conservative.

For borrowers, this means that shopping is essential. A borrower denied at one lender with a 610 score may find approval at another lender whose FHA overlay is 580. The program guidelines have not changed; only the lender’s risk tolerance differs. Mortgage brokers can be particularly useful in this context because they have access to multiple lender channels and can identify which ones have the least restrictive overlays.

How Credit Score Tiers Affect Pricing

Credit score does not simply determine whether a borrower is approved or denied. It determines pricing across multiple dimensions. For conventional loans, Fannie Mae and Freddie Mac publish LLPA matrices that assign fee percentages based on credit score ranges (typically in 20-point bands) and LTV ratios. These fees are substantial: the LLPA difference between a 640 score at 95% LTV and a 760 score at 95% LTV can exceed 3.00% of the loan amount in total adjustments .

Lenders translate LLPAs into either higher interest rates or upfront points charged at closing. A borrower who sees a rate quote of 6.5% with a 700 score might receive 6.0% with a 760 score on the same loan, with the difference attributable entirely to LLPAs.

Mortgage insurance premiums compound the pricing impact. Private mortgage insurance (PMI) providers use risk-based pricing that incorporates credit score, LTV, coverage percentage, and loan term. A 660-score borrower with 10% down may pay PMI rates 2 to 3 times higher than a 760-score borrower at the same down payment level .

Compensating Factors for Borderline Scores

When a borrower’s credit score falls near a program minimum or a pricing tier boundary, compensating factors can make the difference between approval and denial. Compensating factors are elements of the loan file that offset the risk associated with a lower credit score. Common compensating factors include:

A low debt-to-income ratio (DTI significantly below the program maximum) demonstrates that the borrower has substantial payment capacity beyond the minimum required. Large cash reserves (multiple months of mortgage payments held in liquid assets after closing) provide a cushion against financial disruption. A significant down payment or equity position reduces the lender’s loss exposure. Stable employment history with consistent or increasing income over several years indicates reliability. Minimal housing payment increase (the new payment is similar to what the borrower has been paying in rent or on a current mortgage) suggests the borrower can handle the obligation.

Compensating factors are not formulaic; they involve underwriter judgment. Two different underwriters evaluating the same borderline file may reach different conclusions about whether the compensating factors are sufficient. Providing strong documentation for all available compensating factors increases the likelihood of a favorable decision.

Strategies for Borrowers Near Score Thresholds

Borrowers whose scores fall near a program minimum or a pricing tier boundary should consider whether a modest score improvement could produce meaningful benefits. Moving from 615 to 620 can open conventional loan eligibility. Moving from 575 to 580 reduces the required FHA down payment from 10% to 3.5%. Moving from 695 to 700 may unlock jumbo loan access. Moving from 738 to 740 can reduce LLPAs by a noticeable amount.

Targeted credit improvement actions, such as paying down revolving balances to reduce utilization, can sometimes produce the needed score gain within one to two billing cycles. For more immediate results, a rapid rescore through the lender may update the credit file mid-process to reflect recent payments. Borrowers should discuss score optimization strategies with their loan officer before application when possible.

Related topics include credit scores for mortgage explained (fico, vantagescore), what lenders see on your credit report, late payments and mortgage qualification, collections, judgments, and liens on mortgage applications, bankruptcy and mortgage waiting periods, and mortgage after foreclosure or short sale.

Key Factors

Factors relevant to Minimum Credit Score Requirements by Loan Type
Factor Description Typical Range
Loan Program The type of mortgage program determines the baseline minimum credit score set by the guaranteeing or purchasing agency. Conventional: 620. FHA: 500-580. VA: no agency minimum (620 typical overlay). USDA: 640. Jumbo: 700-720+. Non-QM: varies.
Lender Overlay Individual lender policy that may require a higher credit score than the agency minimum. Varies by institution and changes over time. Overlays typically add 0-60 points above agency minimums. FHA overlays of 580-620 are common. VA overlays of 620 are standard.
Loan-to-Value Ratio (LTV) Higher LTV (lower down payment) combined with lower credit scores produces the largest pricing penalties through LLPAs and higher PMI. LTV above 80% triggers PMI. LTV above 90% with scores below 700 results in significant LLPA increases.
Compensating Factors Strengths in the loan file that offset the risk of a lower credit score, such as low DTI, large reserves, or significant equity. DTI below 36%, 6+ months reserves, 20%+ down payment, minimal payment shock are common compensating factors.
Mortgage Insurance Cost PMI premiums on conventional loans are risk-based and increase as credit scores decrease. FHA MIP is not score-dependent. VA has no MI. PMI rates range from approximately 0.20% to 2.00%+ of loan amount annually depending on score and LTV .

Examples

FHA Borrower at 580 vs. 575 Score

Scenario: Borrower A has a middle score of 580 and wants to purchase a $300,000 home. Borrower B has a middle score of 575 and wants to purchase the same property. Both apply for FHA loans.
Outcome: Borrower A qualifies for FHA with 3.5% down ($10,500), requiring total cash to close of approximately $10,500 plus closing costs. Borrower B, falling below the 580 threshold, must put 10% down ($30,000), requiring nearly three times the cash to close. A 5-point score difference translates to approximately $19,500 in additional required down payment on this purchase. Borrower B should explore whether targeted credit improvement could achieve the 580 threshold before proceeding.

Conventional Borrower Crossing the 740 LLPA Tier

Scenario: A borrower is purchasing a $400,000 home with 10% down ($360,000 loan) and has a current middle score of 735. The borrower has two credit cards with a combined utilization of 28%. Paying down one card could potentially raise the score above 740.
Outcome: At a 735 score with 90% LTV, the Fannie Mae LLPA is higher than at 740. The difference in LLPA between the 720-739 tier and the 740-759 tier at 90% LTV can be approximately 0.25-0.50% of the loan amount . On a $360,000 loan, this represents $900-$1,800 in upfront cost or an equivalent rate increase. Paying down the credit card balance to reduce utilization from 28% to under 10% could push the score above 740, saving the borrower this cost differential.

VA Borrower with 590 Score Shopping Lenders

Scenario: An eligible veteran with a middle score of 590 applies for a VA loan at a large national lender and is declined because the lender's overlay requires a minimum 620. The veteran's DTI is 38% with 4 months of reserves and 18 years of stable employment.
Outcome: The VA program itself has no minimum score, so the veteran is not disqualified by the program but by the lender's overlay. By working with a mortgage broker or contacting lenders known for lower VA overlays, the veteran finds a lender with a 580 minimum VA overlay. The strong compensating factors (low DTI, reserves, long employment history) support approval at the 590 score. The veteran secures a VA loan with no down payment and no mortgage insurance.

Common Mistakes to Avoid

  • Assuming a rejection from one lender means the program is not available

    Lender overlays vary significantly. A borrower denied at a lender with a 640 conventional overlay may be approved at another lender following the 620 agency minimum. Shopping multiple lenders, or working with a mortgage broker who has access to various channels, is essential for borrowers near program minimums.

  • Ignoring the pricing impact of score tiers and focusing only on eligibility

    Meeting the minimum score for a program is only the first step. Credit score tiers determine LLPAs, mortgage insurance premiums, and available interest rates. A borrower who barely qualifies at 620 may pay significantly more over the life of the loan than a borrower at 740. Evaluating total loan cost, not just approval, is critical.

  • Not exploring compensating factors when near a score boundary

    Borrowers who present a borderline score without highlighting compensating strengths miss an opportunity to influence the underwriting decision. Low DTI, substantial reserves, large down payment, and stable employment should all be documented and communicated clearly. These factors can offset marginal credit risk.

  • Overlooking the potential benefit of a small score improvement before applying

    A difference of 5-20 points near a program minimum or pricing tier boundary can translate into thousands of dollars in savings or determine program eligibility. Reducing credit card utilization, correcting credit report errors, or allowing time for recent negative events to age can sometimes produce the necessary improvement within a short period.

Documents You May Need

  • Tri-merge credit report pulled by the lender (with FICO 2, 4, and 5 scores)
  • Letters of explanation for any derogatory credit items
  • Documentation of compensating factors (reserve statements, employment verification, DTI worksheets)
  • Evidence of credit improvement actions taken (payment confirmations, balance payoff letters)
  • Proof of alternative credit history if traditional scores are insufficient (rent payment history, utility payment records)

Frequently Asked Questions

What is the lowest credit score accepted for a mortgage?
FHA permits scores as low as 500 with a 10% down payment. However, very few lenders originate at this floor due to overlays. In practical terms, 580 is the effective minimum for FHA with 3.5% down at most lenders, and 620 is the minimum for conventional programs. VA has no official minimum, but most lenders require 620.
Can I get a conventional loan with a 580 credit score?
Standard conventional programs through Fannie Mae and Freddie Mac generally require a minimum of 620. Some specialized conventional products may accept lower scores in limited circumstances with strong compensating factors, but 580 is below the standard conventional threshold. Borrowers at this score level are typically directed to FHA programs.
How much does my credit score affect my interest rate?
The effect is substantial. Loan-level price adjustments (LLPAs) create rate differences of 0.50% to 1.50% or more between borrowers in the highest and lowest eligible score tiers for conventional loans. On a $300,000 30-year mortgage, a 1% rate difference translates to approximately $60,000 in additional interest over the life of the loan .
What are lender overlays and why do they matter?
Lender overlays are credit score minimums (and other requirements) that individual lenders set above the agency program minimums. They exist because lenders bear repurchase risk if loans they sell to agencies default. Overlays vary by institution, meaning the same borrower may be approved at one lender and denied at another for the same loan program. Shopping multiple lenders is the practical response.
Do VA loans really have no minimum credit score?
The VA itself does not publish a minimum credit score requirement for VA-guaranteed loans. However, the VA does not originate loans directly; private lenders do. Nearly all VA lenders impose their own minimum score requirements through overlays, typically 620 but sometimes as low as 580. A veteran's eligibility for the VA program does not guarantee a lender will approve the loan.
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