There isn’t much you can do to raise your credit score past 650 and enter the Good FICO Score range.
However, we have excellent news for you if you didn’t already know that you don’t need to maintain a good credit score in order to be eligible for a mortgage when it comes to home loans. However, credit scores will still be taken into consideration when deciding what loan terms you will receive. For instance, you might have to pay a higher interest rate or put a larger down payment. Your future mortgage payments will depend on the type of mortgage you qualify for and your credit score.
Let’s discuss credit score requirements in detail today so that you can better understand what to anticipate at this stage of your life. The housing market is one of the most difficult areas to be in right now in the year 2021. You will therefore require all the assistance you can get!
Is a 650 credit score a bad FICO score to have?
When discussing loan applications or similar situations, the term “bad credit” is frequently used. But to better comprehend your FICO Score, we must first talk about what bad credit actually entails.
First, the Fair Isaac Corporation categorizes credit score ranges as follows:
Because FICO Scores start at 300, this is the absolute lowest your FICO Score can go. So strictly speaking, a zero FICO Score is not at all possible. And the individuals who do get a FICO Score like 300 are really few and far between. As a matter of fact, only 1% of people will have a FICO score lower than 500, so you’ll know that it really takes extraordinary circumstances for your score to fall down this low.
Even though a credit score of 650 only falls into the Fair category, it is still nothing to panic over. You would still be likely to be approved for many of the home loans available even with a Fair FICO Score, especially at the 650 marks.
Having said that, it’s still crucial that we include this disclaimer. Each person has different needs, and mortgages have different requirements and features. The mortgage lender will always have the final say on whether you qualify or not, so there isn’t a universally applicable mortgage option. However, if one lender doesn’t approve you, you can always go to one of their rivals!
Options for Home Loan with 650 Credit Score
The majority of loan types already accept credit scores of 650, so by including these mortgages below, we won’t be skipping any!
Although it is often referred to as a rural housing loan, you don’t necessarily have to buy a house in the middle of nowhere to qualify for a USDA loan. This kind of mortgage insured by the U.S. Department of Agriculture actually has its own definition of rural, and you never really know if you will qualify for it unless you enter your details on this page.
The USDA loan can encourage the purchase of property in less populated areas in two different ways. First, they don’t require a particular minimum credit score. Second, they’ll ask you to explain your situation if you have poor credit. During the pandemic, you might have missed a few payments or accrued medical debt. You still have a chance of getting approved as long as you can demonstrate that you have the means to pay off this new debt despite having bad credit.
Another factor is that the USDA loan requires no down payment, even though closing costs and other fees still need to be paid. However, it’s a fantastic option for families with low to middle incomes, particularly now that more Americans want to leave the cities as the nation deals with the COVID-19 pandemic.
There really isn’t much of a reason for you to apply for a Federal Housing Administration loan once it reaches 650. But given that it’s the most widely used loan available, it would be improper to omit mentioning it.
FHA loans are designed more for first-time homebuyers, which is why a 500 credit score is all that is required to be eligible. When you consider FHA loans as stepping stones for more conventional loans, they aren’t actually all that bad since getting a mortgage will gradually raise your credit score. But if you do manage to secure an FHA loan and keep it for the duration of the original loan term, that is when you will realize your mortgage was overpriced.
The fact that you must pay for mortgage insurance for the duration of the loan is what really makes FHA loans unattractive. There is a one-time insurance fee due at closing, as well as ongoing monthly insurance payments.
With a credit score of 650, you are already overqualified for an FHA loan, so we advise getting a conventional loan, which is a more traditional type of loan. This one is privately guaranteed, unlike USDA or FHA loans. However, you must pay for mortgage insurance, just like with FHA loans. The good news is that if you can put down at least 20% of the purchase price, you may be able to avoid paying insurance. The insurance is removed once you reach 22% home equity, so if you don’t have this much cash on hand, you’ll have to wait until you do (while continuing to make monthly payments).
If you want to buy a home that is a little more expensive, conventional mortgages might be more your style. These loans must adhere to restrictions set by Freddie Mac and Fannie Mae. As long as you have a credit score of 620 or higher, you should typically be able to qualify for them, so at 650, you’ll probably be approved for many conventional loans available today. Conventional mortgages, however, may occasionally deviate from Freddie Mac and Fannie Mae requirements. Even for million-dollar loans, you can get conventional financing, but there will be many more overlays in these circumstances, so you should have a credit score of at least 700 before applying.
You may also be eligible for a mortgage that the Department of Veterans Affairs will guarantee if you have already been able to serve in the country’s military. There are currently a lot of great benefits to enjoy, making this one of the most potent loans you can get.
Similar to a USDA loan, this loan type doesn’t require a down payment. However, this is superior to USDA because you can select any county or city in the nation that you want. There are no location limits. Additionally, unlike an FHA or conventional mortgage, you won’t need to pay the typical insurance for this. However, there will still be a small VA funding fee, which typically starts at 2. 3% of your total loan amount.
Additionally, recently enacted legislation eliminated VA loan limits previously in place (these vary depending on your location), making them more popular beginning in 2020 when this new law took effect. A VA loan can now be used to borrow up to $1 million.
There may be mortgage lenders willing to accept your application even if you have bad credit because the requirements for VA loans are much more relaxed than those for other kinds of mortgages. However, if you want to be on the safe side, a 640 credit score will typically suffice.
Should I still aim for a higher credit score?
After reading about the various mortgages and their credit requirements, it’s time to consider your unique requirements and preferences for the mortgage you want to obtain.
Remember that your loan will cost more money if you make a smaller down payment. Your future self won’t thank you for settling for less home equity even though it seems more cost-effective now.
However, depending on your choice, this is the only time you’ll be able to determine for yourself whether you’ll require a higher credit score. Working on your credit is generally a good idea, especially if you plan to get a mortgage, but if you already have one, it’s probably just a way to add stress and anxiety.
Your credit score should be closer to 700 the more expensive the home you’re trying to purchase. Beyond this point, however, it won’t really matter as much since lenders will probably end up adoring you as long as your credit score isn’t extremely low.
Am I looking at the right credit scores?
Last but not least, you want to confirm that you are actually referencing the credit score that lenders will use.
There are really many types of credit scores. However, your FICO Score is the most prevalent and the only one you need to be cautious of. Surprisingly, each of the three major credit bureaus—Equifax, Experian, and TransUnion—may provide you with three different ones.
Mortgage lenders will request copies of your credit report from all three of those organizations once you apply for a mortgage. Lenders will now use that specific number if two of your scores end up being equal, regardless of the third. However, if any of the three numbers differ, they will instead use the middle value of your scores rather than the average.
Obtaining your credit report from one company is insufficient. Don’t forget to request your free credit report from each of them.
We sincerely hope that this brief article was able to allay your mortgage-related worries.
Safe travels on your mortgage adventure!
FAQ
Is 650 a good credit score for buying a house?
A credit score of 650 can provide a strong foundation for obtaining the house you need. It can aid in mortgage qualification, but the mortgage will probably have a fairly high interest rate. When you refinance or purchase a new home, you can use this score to help you get a more affordable loan now or in the future.
What kind of loan can I get with a 650 credit score?
With a 650 credit score, you can borrow up to $40,000 to $100,000 or more. Your income, your employment status, the type of loan you obtain, and even the lender all play a role in determining the precise amount of money you will receive.
How much is a down payment on a house with 650 credit?
FHA loans. FHA loans, which are supported by the Federal Housing Administration, require a minimum down payment of 3. 5% if your credit score is at least 580 on a home You must contribute at least 10% if your scores fall between 500 and 579.
Is a 650 credit score OK?
With a FICO® Score of 650, you fall into the category of people whose credit might be considered fair. Your 650 FICO® Score is lower than the average U. S. credit score. According to statistics, 28% of customers with credit scores in the fair range are likely to go into serious arrears in the near future.