A mortgage lender will be more likely to offer you a larger loan and a lower interest rate if your credit score is higher.
You should be able to get a mortgage with a credit score of 650, but you won’t be eligible for the lowest mortgage rate or the largest principal balance. What you should know about the loans you’re likely to receive is listed below.
Is 650 a Good Credit Score?
FICO Scores 2, 4, and 5 are primarily used by mortgage lenders to determine your creditworthiness. Every single one of them employs a scale from 300 to 850, which is divided into the following bands:
A 650 credit score is on the upper end of the “fair” range, but it’s pretty far from optimal. The average credit score for people with a home loan in 2020 was 753.
The majority of lenders will still give you a chance because your credit score of 650 is so close to the lower end of the “good” range, especially if you have a high income or substantial down payment. The minimum credit score range for many types of home loans is between 580 and 640.
You are just above the stricter credit requirements with a credit score of 650. Therefore, you often qualify, but your interest rate may be higher than you’d like.
Options Available for Someone With a 650 Credit Score
You typically won’t be able to get the best mortgage terms with a credit score under 650, but you should at least be able to be approved for many of the most common home loan types. Listed below is a summary of some of your options.
Conventional Home Loans
A minimum credit score of 620 is typically required for conventional home loans. That means that with a score of 650, you should be able to qualify for one, though it may be close depending on your other qualifications.
Make sure you fulfill the additional application requirements, which include the following, to improve your chances of success:
First-time homebuyers are eligible for 3% down payments. If not, you’ll have to put down at least 5%. In either case, you’ll pay private mortgage insurance, but in contrast to most other loan types, you can stop paying it once you reach 20% equity.
USDA Home Loans
The United States Department of Agriculture (USDA) assists rural residents with low incomes in becoming eligible for mortgage loans. If borrowers default, it insures mortgages for particular lenders and pays them 90% of the outstanding balances.
With a 650 credit score, USDA home loans are slightly more difficult to qualify for than conventional loans. Although the USDA does not mandate a minimum credit score, the lenders they partner with typically demand a score of at least 640.
The following are the additional primary requirements for USDA loan eligibility:
If you meet all the requirements, you may be eligible for a home loan with 0% interest, but you will have to pay upfront and ongoing mortgage insurance. Once you reach 20% equity, you’ll need to refinance to get out of it.
Thankfully, USDA loans frequently have lower interest rates than standard loans. Even though you have a credit score of 650, this can help you make your loan more affordable.
Credit Unions
Traditional banks frequently adhere to the underwriting standards of a third party, such as Fannie Mae, Freddie Mac, or the USDA, when making mortgage loans.
If a borrower defaults, doing so gives them the option to sell off their loans or obtain additional insurance. However, it means that their loan terms are typically not very flexible.
Also Read: Why Buying a House is a Bad Investment
Credit unions, in contrast, are frequently small local businesses that keep their mortgages rather than selling them to a third party. Working with them is usually a much more personalized experience.
Home loans from credit unions are consequently less reliable than the other loans on this list. Thus, there is no set minimum credit score required for any of their mortgages.
However, they tend to have higher standards than other lenders. But concurrently, they’re also more willing to fully evaluate your creditworthiness and bargain with you.
VA Home Loans
There is no minimum credit score requirement for VA loans, which are insured by the Department of Veterans Affairs. However, the lenders that provide them typically have specifications ranging from 580 to 640.
Your credit score of 650 puts you well above the requirements for VA loan providers who are less stringent, but you might have trouble getting approved from those who are more stringent. To improve your chances, keep your debt-to-income ratio well below the 41% threshold.
You must also fulfill the criteria for active-duty service in order to qualify for a VA loan. Those can range from 90 days to 24 months, depending on when and where you serve. You may also be eligible if you are the veteran’s surviving spouse.
Your best financing choice may be a VA loan if you meet the requirements. VA loans allow 0% down payments without charging mortgage insurance. In comparison to other types of mortgage loans, they might also have lower closing costs and interest rates.
FHA Home Loans
Last but not least, if your credit score is 650 or higher, you may also be eligible for a Federal Housing Administration loan, or FHA loan. With a debt-to-income ratio cap of 50% and lower credit score requirements, an FHA loan may actually be the most approachable loan type.
If a borrower can make a 10% down payment and has a credit score of at least 500, lenders will typically offer them an FHA loan. You might be eligible for a down payment as low as three percent with a credit score of at least 580. 5%.
In either case, you’ll pay a mortgage insurance premium up until you reach 20% equity. At that point, you can refinance into a conventional loan to escape the mortgage insurance premium.
However, their typical interest rates are lower than those of conventional loans, which can help offset any mortgage insurance expenses.
Unfortunately, FHA loans have strict principal balance limits that may restrict the size of the loan you can get. You can look up the rules for your area on the Department of Housing’s website.
Mortgage Rates For Someone With a 650 Credit Score
For the best mortgage rates, you’ll typically need a FICO score of at least 760, and anything lower than 680 puts you at risk of getting an unaffordable one.
Sadly, this means that a credit score of 650 places you in a zone where you are frequently just qualified for financing but not quite qualified for a loan worth taking.
Most of the time, you’d be better off delaying your mortgage application until you’ve improved your credit score because you could end up saving thousands of dollars in interest.
Here is an illustration of mortgage interest rates for each range of credit scores:
Interest Costs and Credit Score Ranges
| FICO Credit Score | Estimated Interest Rate | Total Interest Paid |
| 760 – 850 | 2.762% | $141,587 |
| 700 – 759 | 2.984% | $154,401 |
| 680 – 699 | 3.161% | $164,764 |
| 660 – 679 | 3.375% | $177,464 |
| 640 – 659 | 3.805% | $203,541 |
| 620 – 639 | 4.351% | $237,700 |
Your mortgage interest rate would be about 3 with a credit score of 650. A $300,000, 30-year loan at an interest rate of 85% would cost you about $203,541 in total. You could save more than $25,000 if you could raise your credit score just by 30 points.
How to improve your credit score
If your credit score is below 650, it may be worthwhile to take the time to raise it so that you can purchase a home at a reasonable interest rate. Although you don’t have poor credit, having a higher credit score would still help you save a lot of money.
Fortunately, that’s usually a lot simpler than you might think. As you establish your credit history, all you have to do is be persistent and disciplined once your credit repair system is in place.
Here are some actions you can take to get closer to your desired destination:
Get a Credit Strong Credit Builder Loan
Try to diversify your credit mix and build your credit history with both revolving and installment debt, such as a credit card and a personal loan, in order to raise your credit score as quickly as possible.
Americans have just under four credit cards on average, so you probably don’t need another one of those, but you might not be as well established with installment debt.
Of course, taking out a loan just to boost your credit score is a bad idea, and most lenders won’t give you money for no reason at all. That’s where credit builder loans come in handy.
Upon approval, the lender will deposit the loan proceeds in a savings account rather than paying you. When you have paid off the balance in full, they release the funds to you, and you resume making your regular monthly payment.
In this manner, the lender is protected while you make your debt payments, and over the course of the loan, you get to improve both your credit and your savings. At Digital Honey, we strongly suggest Credit Strong as the top product available.
Decrease Your Credit Utilization
One of the most important factors in determining your creditworthiness according to FICO is the amount of debt you have outstanding. In fact, it’s worth 30% of your credit score.
Checking your credit utilization is one of FICO’s favorite ways to assess the health of your debt balances, and they take both your revolving and installment accounts into account.
Divide your outstanding balance by the total amount of your available credit to determine your revolving credit utilization ratio. Say, for illustration, that you owe $7,000 on two different credit cards. Your credit utilization ratio is 70% if both of them have a $5,000 cap.
You’ll see the biggest improvements in your score if you can achieve that ratio between 1% and 10%. At the most, never let it get above 30%.
Divide your outstanding loan balances by the total of your loans’ original principal amounts to determine your installment utilization. Say, for instance, that you have $12,000 remaining on a $20,000 auto loan. You’d have an installment utilization ratio of 60%.
Again, the lower your ratio can be, the better. You can pay off your loan in full up front and leave it open to improve your credit score.
Contest Errors on Your Credit Report
Roughly 5% of people have errors on their credit report that could cause them to get a more expensive interest rate than they deserve. While it’s not exactly common, it does happen, and it’s worth making sure your report is accurate.
You can get a copy of your credit reports for free every week from Annual Credit Report.com until April 2022 because of the COVID-19 pandemic. After that, you can get a free copy there once a year.
Search all three of your credit reports for inaccuracies. Focusing on your payment history and outstanding balances is normal, but don’t forget to double-check other personal information, such as your name and address.
If you find any mistakes, send a letter to the credit bureau whose report has the incorrect information and request a change. You can find a template for it on the Consumer Finance Protection Bureau’s (CFPB) website.
Avoid Hard Credit Inquiries
You add a hard inquiry to your credit report each time you apply for a new credit account. Each of these can reduce your score by a few points. Having too many of them may result in a severe fine.
Keep in mind that these are not the same as soft inquiries, which happen whenever a person, including you, pulls your credit report for any reason other than to open an account for you.
Try to limit the number of difficult questions on your report to two or less. That will benefit your score the most. Keep it below six subsequent inquiries, at the very least, as FICO notes that this is a major red flag.
Fortunately, inquiries don’t remain an issue for too long. After a year, they should stop affecting your credit, and after two years, they should completely disappear from your report.
FAQ
What mortgage rate can I get with a 650 credit score?
Your mortgage interest rate would be about 3 with a credit score of 650. A $300,000, 30-year loan at an interest rate of 85% would cost you about $203,541 in total. You could save more than $25,000 if you could raise your credit score just by 30 points.
Can I get a 250k mortgage with a 650 credit score?
Like any other FICO® Score in the fair range, a credit score of 650 is likely to prevent you from receiving the lowest interest rate from a mortgage lender. A 650 FICO® Score may not be enough to qualify for a mortgage with some lenders, but it does meet many of their minimum lending standards.
Is 640 a good credit score to buy a house?
If you intend to reside in a rural or suburban area that qualifies and your income is less than 115% of the median income for the area, you might want to consider a USDA loan, which is backed by the government. For USDA loans, the majority of lenders demand a minimum credit score of 640.
What does a 650 credit score qualify for?
You have a credit score of 650, which puts you squarely in the “fair” range. Even though you may be able to obtain financial products like a mortgage or car loan, you will probably have to pay higher interest rates than someone who has better credit. The “good” credit range starts at 690.