Can I Get a Home Loan With a 650 Credit Score? Your Financing Options Explained

A credit score of 650 falls right in the middle of the fair credit range, which spans from 580 to 669. So while it’s not terrible, a 650 score also leaves room for improvement before reaching good credit territory.

When it comes to qualifying for a mortgage, lenders generally prefer borrowers with a minimum credit score of 620 or 640. But some lenders may approve loans for people with scores as low as 580.

So if your credit score is around 650, financing a home purchase is certainly possible. But you’ll likely pay higher interest rates than borrowers with excellent credit.

In this comprehensive guide, we’ll explain how a 650 credit score impacts your mortgage options, how much home loan you can qualify for, steps to improve your score, and tips to get approved.

How a 650 Credit Score Affects Your Mortgage Eligibility

Here’s an overview of how a credit score of 650 will influence your mortgage loan eligibility and terms:

• Interest rates – Expect to pay higher interest with a 650 score, potentially 025% – 1% above rates for 700+ scores.

• Approval odds – 650 meets many lenders’ minimum score requirements but may not qualify with all lenders.

• Loan types – Eligible for conventional loans, FHA, USDA, and VA loans.

• Down payment – Typically at least 3.5% down required, with options for low down payment loans.

• Loan amounts – Can qualify for conforming loan limits with good income/debt ratios

• Documentation – Should provide explanation for negative marks on your credit report.

While not ideal, a credit score of 650 is workable for mortgage approval, especially if you meet other requirements like steady income low debt, and cash reserves. But taking time to improve your score first may open up better loan offers.

How Much Mortgage Can You Get With a 650 Credit Score?

The maximum mortgage amount you can qualify for will depend on factors like your income, assets, debts, and down payment amount. But in general, here are mortgage limits to expect with a 650 credit score:

• Conventional loans – Up to the conforming loan limit, typically $647,200 for a single family home in most counties. Higher in costly metro areas.

• FHA loans – Up to $970,800 in most counties. FHA also offers low down payment options.

• VA loans – No set maximum. Approval based on income/debt ratios and VA entitlement.

• USDA loans – Typically up to $647,200. Higher in some costly areas.

Your lender will use your income, assets, debts, and credit report to calculate the specific loan amount you qualify for based on your 650 credit score and financial profile.

Pre-approval can give you an early estimate of the max home loan you may be eligible for. But the final approved loan amount comes after the lender evaluates your full application.

Steps to Improve Your Credit Score Before Applying

Because a 650 score likely leads to higher mortgage rates, you may want to spend 6-12 months improving your credit before applying. Here are smart steps to raise your score:

• Pay down balances – Lower credit card and installment loan balances to reduce your debt-to-income ratio.

• Pay on time – Set up autopay and alerts to avoid any late payments that hurt your score.

• Limit hard inquiries – Each new loan or credit card application causes a hard inquiry that dings your score temporarily.

• Correct errors – Dispute any inaccuracies on your credit reports that may be dragging your score down.

• Become an authorized user – Ask a family member with good credit to add you as an authorized user to help build your history.

• Monitor your score – Check your credit score regularly so you know if your efforts are working.

With diligent credit management, you could potentially increase your score by 50 points or more within a year.

What Are the Best Mortgage Options with a Credit Score of 650?

Here are your best mortgage choices if your credit score is currently around 650:

1. FHA Loan

The Federal Housing Administration insures FHA loans, which are offered by private lenders. FHA allows credit scores as low as 580 and down payments as low as 3.5%. These features make FHA loans more accessible for borrowers with fair credit or limited savings.

Benefits:

• Minimum 580 credit score

• Only 3.5% down payment required

• Low mortgage insurance

Drawbacks:

• Maximum loan amount lower than conventional loans in many counties

• Upfront and annual mortgage insurance premiums

2. VA Loan

VA loans are guaranteed by the Department of Veterans Affairs for eligible military service members, veterans, and surviving spouses. VA loans offer favorable terms and have no minimum credit score requirement. But most lenders prefer VA borrowers have at least a 620 score.

Benefits:

• No minimum credit score

• No down payment required

• No monthly mortgage insurance

Drawbacks:

• Must meet VA service requirements

• Funding fee added to your loan amount

3. USDA Loan

USDA home loans are backed by the U.S. Department of Agriculture for low-to-moderate income buyers in designated rural and some suburban areas. These loans are a good option for qualifying borrowers in eligible locations.

Benefits:

• 100% financing available

• Low minimum credit scores accepted

• Fixed low interest rates

Drawbacks:

• Property must be in an eligible rural area

• Income caps apply

• Upfront guarantee fee required

4. Conventional Loan

You can qualify for a traditional conventional loan with a minimum credit score around 620 or 640. Interest rates are usually higher for borrowers with fair credit compared to those with very good or excellent scores.

Benefits:

• Option for as low as 3% down with HomeReady or HomePossible programs

• No mortgage insurance if you put down 20%

• Higher loan limits than government programs

Drawbacks:

• Require 10% – 20% down payment to get the best rates

• Prone to higher interest rates with lower credit scores

Tips for Getting Approved for a Mortgage with a 650 Credit Score

Though possible to qualify, getting a home loan with a 650 credit score can be challenging. Here are tips to boost your chances of approval:

• Make a larger down payment of at least 10-20% to offset credit risk

• Ask a family member to co-sign the mortgage application with you

• Highlight stable job history and income sources

• Explain negative marks on your credit report

• Document significant assets and cash reserves

• Reduce debt balances before applying to improve your debt-to-income ratio

• Shop with lenders that advertise 650 score mortgages

• Get pre-qualified to confirm your loan amount and interest rate

A 650 credit score makes financing a home purchase achievable. But taking some time to improve your credit and finances first may lead to better mortgage rates and terms.

Frequently Asked Questions About 650 Credit Score Mortgages

Can I get approved for an FHA loan with a credit score of 650?

Yes, the minimum FHA credit score requirement is 580, so your 650 score meets the threshold to qualify for an FHA-insured mortgage.

What is the maximum mortgage amount I can get with a 650 credit score?

With a 650 credit score, you can potentially qualify for up to the conforming loan limit, which is typically $647,200 for a single family home. The max depends on your income, debts, assets, and down payment.

My credit score is 650. Should I wait to apply for a mortgage?

Waiting 6-12 months to improve your credit score could help you qualify for lower interest rates and better loan terms. But a 650 score may be adequate depending on your full financial profile.

What credit score do I need to get the best mortgage rates?

To get the very lowest mortgage rates from lenders, you generally need a minimum credit score of 740-760. Borrowers with scores of 700-739 can also qualify for good rates.

How long does it take to raise your credit score by 50 points?

With diligent credit management, you may be able to raise your credit score by 50 points or more within 6 to 12 months. Steps like paying bills on time, lowering balances, and correcting errors help increase your score.

The Bottom Line

A credit score of 650 is considered fair, and shows room for improvement before reaching good credit territory. While not ideal, a 650 score can qualify you for an FHA, VA, USDA, or conventional mortgage, allowing you to finance a home purchase. Taking time to increase your score before applying will open up better loan offers. Take advantage of down payment assistance programs and be prepared to explain negative marks on your credit report to improve your chances of approval.