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CREDIT SCORE AND DTI GUIDELINES FOR MORTGAGE
What’s the minimum credit score and debt-to-income ratio required to get the best rates on a mortgage loan.
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To get the best rates on a home loan, mortgage lenders traditionally require a good credit score and a low debt-to-income (DTI) ratio. Here are the minimum credit score and DTI requirements to qualify for the lowest mortgage rates:
Minimum Credit Score Required for Best Rates
Conventional Loans:
Typically, getting the best rates on a conventional mortgage would help if you had a credit score of 740 or higher. Although it’s possible to qualify with a 620 or above, you’ll need at least that much plus additional points to secure your loan at its lowest interest rate.
FHA Loans:
Credit scores can be lower for FHA loans. A 680 or higher credit score is often necessary to enjoy their lowest rates. Still, it’s also possible for applicants with scores as low as 500-579 to obtain an FHA loan. However, their interest rates will be considerably higher than those offered to other borrowers.
VA Loans:
The VA does not set strict minimums for applicants’ credit scores. Most lenders want them to see at least 620-640 on your report before approving this financing product. And if you want even better terms? Shoot for having nothing less than 700.
USDA Loans:
Suppose you are applying for one of these mortgages backed by USDA Rural Development programs. In that case, you must have a minimum FICO score of at least 640. However, shooting closer to seven hundred can only help reduce interest rates.
Minimum Debt-to-Income (DTI) Ratio Required for Best Rates
Conventional Loans:
A good rule of thumb is to keep your debt-to-income ratio under 36% when applying elsewhere. Still, lenders prefer to stay closer to thirty percent of the maximum total monthly payments compared to overall income levels. Anything above could affect approval odds significantly enough that even securing the highest possible rate still wouldn’t make financial sense, given other options available.
FHA Loans:
The Department of Housing and Urban Development doesn’t just allow higher DTI ratios—it encourages them for first-time buyers. While traditional lenders may not approve mortgages with a debt-to-income ratio above 31%, FHA-insured loans can be granted to people whose ratio reaches as high as 50% if other “compensating factors” are present. Nonetheless, keeping yours around 43% or lower is best to get approved quickly at good interest rates.
VA Loans:
If you’re eligible for this zero-down-payment program thanks to military or veteran status, remember that its requirements are even more forgiving than those set by HUD: You could still qualify with a DTI over 41%; however, if your ratio is below thirty percent. Especially when combined with an excellent credit record. There isn’t any reason someone would want to go elsewhere looking for favorable mortgage financing terms such as these.
USDA Loans:
Like VA loans, USDA-backed mortgages don’t strictly limit borrowers’ DTIs. Underwriters look at total monthly debts relative to income levels. Ideally, we aim for nothing above thirty percent front end (housing costs) or forty-one percent back end (total debts).
Compensating Factors
Suppose the lender needs help finding everything up to par about your application, like if your credit score or DTI number slightly exceeds their guidelines. In that case, they’ll still consider giving you a loan if one or more compensating factors apply:
- A larger down payment (e.g., 20% or more).
- Significant cash reserves.
- A long history of stable and increasing income.
- Minimal or no other outstanding debt.
To get the best rates on a mortgage loan, you need a credit score above 740 and a debt-to-income ratio below 30%. Although some programs are more flexible, meeting or exceeding these standards will give you the greatest chance of getting favorable rates and terms. If your numbers are close but still need to be quite there, try to improve them before applying for a mortgage by increasing your credit score or reducing debt levels.