Buying a Home With a 640 Credit Score in 2023

A credit score is one of the key factors mortgage lenders review when determining your eligibility for a home loan If your score is on the lower end, you may be wondering if homeownership is still possible. The good news is that a 640 credit score is typically high enough to qualify for certain mortgage options However, you’ll likely need to meet some additional requirements compared to buyers with higher scores.

In this comprehensive guide, we’ll discuss what a 640 credit score means, the best mortgage programs available, interest rates you can expect, tips for getting approved, and how to potentially improve your credit standing. With the right strategy and loan choice, buying a home with a 640 FICO score is very achievable.

What Does a 640 Credit Score Mean?

Before diving into mortgage specifics, it helps to understand credit score basics. The FICO scoring model, used by over 90% of lenders, ranges from 300 to 850.

• Scores above 760 are generally considered excellent
• 700-759 is good credit
• 650-699 is fair credit
• 600-649 is poor credit
• Under 600 is very poor credit

So a FICO score of 640 falls into the fair credit range, toward the lower end. It’s below the average credit score of 716. While not ideal, a 640 credit score indicates you still have access to mainstream mortgage options, which we’ll cover next.

Best Mortgage Programs for a 640 Credit Score

While every lender sets their own requirements. here are some of the most common home loans available to buyers with a 640 credit score

FHA Loans

• Minimum 580 credit score for 3.5% down payment
• Allows scores as low as 500 with 10% down
• Low down payment option

VA Loans

• No minimum credit score set
• No down payment required
• For qualifying veterans and service members

USDA Loans

• 640 minimum credit score
• No down payment required
• For properties in designated rural areas

Conventional Loans

• Minimum 620 credit score
• 3% down payment option
• May require higher down payment for 640 score

Non-Prime and Non-QM Loans

• Offered by some portfolio lenders
• Higher interest rates and costs
• Should not be first choice

Government-backed loans like FHA, VA, and USDA tend to offer the most flexibility for buyers with weaker credit. Conventional loans have stricter requirements but may still be an option if you can make a larger down payment.

Interest Rates to Expect with a 640 Credit Score

While a 640 credit score meets the minimum requirements for most loan programs, it will fall on the higher end of the interest rate range. Here are some examples of average 30-year fixed mortgage rates for different credit score brackets:

So you can expect to pay around 0.5% to 1% higher interest with a 640 credit score compared to someone with excellent credit. Shopping around with multiple lenders can help you secure the lowest rate available.

Maximum Loan Amount with a 640 Score

Beyond your credit score, the amount of mortgage loan you can qualify for also depends on factors like your:

• Income
• Existing debts
• Down payment size
• Debt-to-income ratio

Borrowers will need to meet each lender’s specific underwriting guidelines for approval. In general though, a 640 credit score borrower that has a solid down payment, low debts, and strong income could potentially qualify for a substantial loan amount.

Government loans like FHA and USDA also impose maximum conforming loan limits, which vary by county. These caps are generally between $420,000 to $750,000. Jumbo loans above those amounts are possible with a 640 score, but will have stricter requirements.

Tips for Getting Approved with a 640 Credit Score

A 640 credit score makes getting a mortgage more challenging but not impossible. Here are some tips that can help strengthen your loan application:

Make a larger down payment – 20% or more gives you the best approval odds

Lower your debt-to-income ratio – Lenders may want less than 36% with a 640 score

Show significant cash reserves – Ideally 6+ months worth of mortgage payments

Highlight stable income – Minimum 2 years with current employer preferred

Pick government-backed loans first – FHA, VA, and USDA loans offer more flexibility

Comparison shop with lenders – Find one with more lenient 640 score guidelines

Get pre-qualified – Shows sellers you can get financing and locks in rates

With the right loan program and some extra preparation, a 640 credit score borrower can overcome lending challenges. Pre-approval from a lender also demonstrates you are a serious buyer when making an offer.

How to Improve Your Credit Score

The higher your credit score, the better your chances of getting approved and securing low mortgage rates. Here are tips for improving your credit score over time:

• Pay all bills on time – Payment history is a major scoring factor
• Lower credit card balances – High utilization hurts scores
• Avoid new credit inquiries – Too many can lower your score
• Monitor all 3 credit reports – Dispute any errors
• Ask lenders for a rapid rescore – Can quickly improve score by fixing errors or outdated information
• Let age build credit history – Longest aged accounts help over time

With diligent credit management, you can potentially see your FICO score increase by 50 points or more within 6-12 months. Shopping lenders again once your score hits 660, 680 or above can really improve your mortgage prospects.

Final Thoughts

A credit score of 640 places you in the fair range – not excellent, but still viable for homeownership with the right mortgage. Government-backed loans like FHA, VA, and USDA provide the most down payment flexibility. Conventional loans are possible too but may require a slightly larger down payment.

While interest rates are higher compared to buyers with very good credit, they remain near historic lows. With careful preparation, thoughtful financial planning, and an experienced loan officer on your side, you can still achieve your homebuying dreams with a 640 credit score.