When you have a credit score of 650, there’s really not much left to go to get to the Good FICO Score range.
If you didn’t know this yet, though, we have great news for you because, as far as home loans are concerned, you don’t need to maintain a good credit score if you want to qualify for a mortgage. However, credit scores will still be important when determining what terms you will get for your loan. For example, you might need to make a bigger down payment or pay a higher interest rate. The type of mortgage you’ll get with the credit score you have will dictate how much you’ll be paying in the future.
Today, let’s talk all about credit score requirements so you can have a better idea of what to expect at this point in your life. It’s 2021! And the housing market is one of the toughest places to find yourself in at the moment. So you’re going to need all the help you can get!
A credit score of 650 used to be considered quite good. Just a decade or two ago, lenders were happy to approve mortgages for borrowers with scores in the mid-600s. But in today’s lending environment, a 650 credit score falls short of ideal.
The major credit bureaus (Experian Equifax and TransUnion) categorize credit scores using the following ranges
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
So with a score of 650, you’re in the upper end of the ‘fair’ credit range. The major credit bureaus have different credit scoring categories, and a good credit score is between 670 and 739. A 650 is on the high end of the fair credit score category, which ranges from 580 to 669.
While a 650 credit score is not considered great, the good news is that it meets the minimum requirements for many mortgage lenders Here’s what you need to know about getting a home loan with a 650 credit score
Can You Still Get Approved?
The short answer is yes you can still qualify for a mortgage with a 650 credit score. While some lenders may turn you down others will approve you.
Your interest rate won’t be the lowest, but you should still be able to find an affordable home loan. Just be prepared to shop around to multiple lenders to get the best deal.
According to myFICO’s data, here are the average mortgage rates for different credit score ranges:
- 780-850: 2.563%
- 740-779: 2.686%
- 720-739: 2.812%
- 700-719: 2.981%
- 680-699: 3.113%
- 660-679: 3.257%
- 640-659: 3.627%
- 620-639: 3.983%
With a 650 credit score, you can expect to pay an interest rate around 3.5% to 4% for a 30-year fixed-rate conventional mortgage. Rates are usually higher for FHA and VA loans.
While not the lowest rate, 4% is still reasonable especially compared to alternatives like FHA loans which charge an upfront mortgage insurance premium and annual MIP.
Factors Other Than Your Credit Score
When applying for a mortgage, lenders look at more than just your credit score. They also consider:
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Your income – Lenders want to see you have enough steady income to make the monthly payments.
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Your debts – Too much existing debt can make it harder to qualify and raise your interest rate.Aim for a debt-to-income ratio below 36%.
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Downpayment amount – The more you put down, the better. At least 20% down is ideal but many lenders accept less.
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Loan type – Government-backed loans from FHA, VA and USDA are an option if you can’t get approved for a conventional loan.
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Your credit history – Lenders dig into the details of your credit report looking for red flags like late payments, collections or bankruptcies.
While your credit score gives lenders an overview of your creditworthiness, these additional factors also come into play. Having a 650 score doesn’t automatically make you high-risk if the rest of your application is strong.
Compare Multiple Lenders
Every lender has their own underwriting policies and product offerings. The interest rate and loan terms you are offered can vary significantly from one mortgage company to the next.
That’s why it pays to get mortgage quotes from several different lenders when you have a 650 credit score. Compare interest rates, fees, loan programs and eligibility requirements. You may find one lender willing to work with you when others turned you down.
Online lenders and credit unions are a good place to start your search along with big banks. Connect with both mortgage brokers and direct lenders to expand your options.
Review Your Credit Reports
Before applying for a mortgage, get free copies of your credit reports from Equifax, Experian and TransUnion. Look for any inaccuracies or errors that may be dragging down your scores.
You can order your free annual credit reports online at www.annualcreditreport.com.
If you find mistakes on your reports, file disputes with the credit bureaus to correct the information. This can boost your credit scores and make your mortgage application stronger.
Also look for recent late payments, collections or other negative items that lenders may question you about. Come up with an explanation for any credit report red flags.
Boost Your Credit Scores
While a 650 credit score is adequate for approval on many home loans, you can potentially improve your scores with some work. Higher scores get you lower mortgage rates saving you significant money over the life of the loan.
Here are some tips for boosting your credit scores:
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Pay down balances – Lower credit card balances can help improve your credit utilization ratio which makes up 30% of your FICO score. Shoot for less than 30% utilization on each card.
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Become an authorized user – Ask a family member with good credit to add you as an authorized user on a credit card account in good standing. Their positive history will be added to your credit reports.
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Limit new credit – New credit applications can drop your scores, so avoid applying for new credit cards or loans before applying for a mortgage.
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Pay on time – Payment history is 35% of your FICO score. Pay all your bills on time every month. Set up automatic payments if it helps.
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Monitor your credit – Sign up for free alerts on your credit reports to catch any suspicious activity that could tank your scores.
With diligent effort, it may be possible to increase your credit score to over 700 within 12 months which will open up better mortgage rates and terms.
Government-Backed Loan Programs
If you’re unable to qualify for a conventional mortgage, government-loan programs can help. FHA, VA and USDA home loans have more flexible credit guidelines and down payment requirements.
Here are some options to consider with a 650 credit score:
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FHA loan – Requires just a 580 credit score plus 3.5% downpayment. But you’ll pay an upfront mortgage insurance premium and ongoing MIP.
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VA loan – For veterans and military members. No minimum score but lenders often want over 620. No downpayment needed.
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USDA loan – For low/moderate income borrowers in rural areas. Again no minimum score but lenders usually want over 640.
Government loans allow lower credit scores, smaller downpayments, and more flexibility. But you’ll pay more in fees and interest rates compared to conventional mortgages. Still worth considering if you really want to buy a home now.
Should You Wait to Improve Your Credit?
If your credit score is on the lower end of the 650 range, you may want to wait 6-12 months before applying for a mortgage. Use that time to improve your credit by paying down debts, disputing errors on your credit reports and paying all bills on time.
Just a 50-100 point increase in your credit scores can open up better loan options and save you thousands over the life of your mortgage. If your scores are below 640, waiting to improve your credit is highly recommended.
But if your scores are in the mid-to-high 600s, you have a decent shot at qualifying for a mortgage now albeit with higher rates. Getting pre-approved will help you know your exact options.
Pre-approval and Pre-qualification
Before falling in love with a home you can’t get a loan on, go through the pre-approval or pre-qualification process. This involves completing a mortgage application and submitting financial documents so the lender can verify your income, assets, debts, and credit.
You’ll receive a pre-approval letter stating the loan amount, rate and terms you qualify for based on your current finances and credit. It doesn’t guarantee final approval but shows sellers you are a serious buyer.
Pre-qualification is less rigorous without income/asset verification but gives you an idea of your estimated mortgage eligibility. This takes just minutes compared to a few days for pre-approval.
Shop for Lower Rates Again After Closing
The interest rate you receive when first getting approved with a 650 credit score likely won’t be the lowest you can qualify for. Lenders typically re-check your credit right before closing and can adjust your rate then if your score has increased.
And after closing on the mortgage, you’ll want to consider refinancing to a lower rate once your credit improves more. Many homeowners refinance within 12-18 months of their original purchase loan.
So while you may start out with a higher rate due to your 650 score, you can often get that lowered in the future with a refinance as your credit improves.
The Bottom Line
A credit score of 650 is on the low end of what most mortgage lenders want to see. But it should be sufficient to qualify for some type
Should I still aim for a higher credit score?
Now that you have read about the different types of mortgages and their credit requirements, it’s time to ask yourself your particular needs and preferences for the kind of mortgage you want to get.
- Are you looking for a mortgage you’ll stick with forever, or will you be open to get refinancing when there are better rates in the future?
- How long do you plan on staying in your new home?
- How much down payment are you willing to make or capable of paying?
- Are you buying a house in a rural area?
Keep in mind that the lower the down payment you make, the more expensive your loan becomes. It may seem easier on the pocket now to settle for lesser home equity, but your future self will definitely not thank you for it.
Based on what you decide, though, this is only when you’ll be able to tell for yourself if you’ll need a higher credit score. In general, it’s always a good idea to work on your credit, especially if you’re planning to get a mortgage, but if you already have it in the bag, it’s probably just a way of gaining undue stress and anxiety.
The more expensive the home you’re trying to buy, the closer to 700 you’ll want to get your score. Beyond this number, though, it won’t really matter as much because as long as you don’t have a very poor credit score, lenders will most likely end up loving you.
Is a 650 credit score a bad FICO score to have?
Oftentimes, you will hear the phrase bad credit thrown around when it comes to loan applications or similar matters. But we need to discuss just what bad credit really means to understand your FICO Score a little bit better.
To start, this is how the Fair Isaac Corporation classifies credit score ranges:
- 300 to 579 is Poor
- 580 to 669 is Fair
- 670 to 739 is Good
- 740 to 799 is Very Good
- 800 to 850 is Exceptional
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.
A 650 credit score really only rests in the Fair range, but it is still nothing that you should be wringing your hands for. Even with a Fair FICO Score, and especially at the 650 marks, you’d still be likely to get approved for many home loans you will find.
All that said, it’s still important for us to put this disclaimer. There’s no cookie-cutter mortgage option that would be able to serve everyone because each person has their own needs, and mortgages have their own requirements and features—the final decision of whether you’ll qualify or not will always be up to the mortgage lender. If you don’t get approved by one lender, though, you can always visit their competition!
How Much of a Home Loan Can I Get with a 650 Credit Score
FAQ
What kind of home loan can you get with a 650 credit score?
What credit score is needed to buy a $300K house?
What credit score is needed to buy a $400,000 house?
Can you get financed with a 650 credit score?
Can you buy a home with a 650 credit score?
You can buy a home with a 650 credit score. Many lenders have multiple types of loans that serve these borrowers. What is the interest rate on a mortgage with a 650 credit score?
Is 650 a good credit score for a mortgage?
A FICO ® Score ☉ of 650 meets some lenders’ minimum requirements for a mortgage loan—but credit scores aren’t all mortgage lenders look for when deciding how much to lend you or what interest rates they’ll charge. Is 650 a Good Credit Score?
What is the average home loan interest rate with a 650 credit score?
The average consumer seeking a home loan with a 650 credit score ended up with a 7.45% interest rate in February. Interest rates normally fluctuate, but in the current market, rates have become more volatile. You can’t control the market rate, but there are some things you have more control over.
Can you buy a house with a credit score of 500?
Just because you can get a mortgage to buy a house with a credit score in the 500s doesn’t mean that it’s a good idea. The higher your credit score, the lower your mortgage interest rates. Every ⅛ of a point that you can lower your interest rate can save you thousands of dollars over the course of your loan.