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What credit score do I need to get the best rate?

What credit score do I need to get the best rate?

October 5th, 2016 | 247, application, baltimore, home loan, lenders, loan programs, maryland, millenials, mistakes, mortgage, new, real estate, refinance, credit

What credit score do I need to get the best rate?

 

Great question!  This is one that I hear frequently from clients.  The answer is.......it depends on your situation. It depends on what type of loan program you are using, how much of a down payment you have, and which lender you are working with to secure financing.  

 

Generally speaking, if you are obtaining a Conventional mortgage, backed by Fannie Mae or Freddie Mac, you can qualify for the best rates with a credit score of 740 or higher. There are a few exceptions , though. For example, if you have a down payment of 40%, you can obtain the best rates with a credit score as low as 660. That is correct! If you are putting down 40% or more and have a 661 credit score, you can qualify for the same rate as someone who has a 747 credit score.  

 

Another exception is when you are borrowing more than 80% of the purchase price and opt for a loan with Lender Paid Mortgage Insuance (LPMI). In this instance, you usually need a credit score of 760 or higher to get the absolute best pricing available. As a side note, I think it is important to mention that lower credit scores have a MAJOR impact on the interest rate when obtaining a conventional mortgage. If two different buyers both want to purchase a home using a conventional loan with 10% down, the buyer with a 668 credit score can expect their interest rate to be approximately one-half to three-quarters of a percent (.5-.75%) higher than a buyer with a 755 credit score.

 

So, we covered Conventional loans... let's move on to Government insured loans which include FHA, VA, and USDA.  The best rates are usually available to borrowers with at least a 720 credit score when obtaining an FHA, VA, or USDA loan. The good news is that there is not much difference in rate for a lower credit score when using a government insured loan. For instance, someone with a credit score of 643 should probably expect an interest rate that is only approximately one-eight of a percent (.125%) higher than someone with a 729 credit score. Unlike conventional loans, larger down payments do not provide better pricing on government loans. So, if you are using an FHA loan to purchase your home, you will get the same interest rate whether you put down the minimum required 3.5%, or if you put down 10%...or even 30%! 

 

The lender you are working with may also affect what credit score you need to get the best interest rate.  I am a mortgage broker and I work with 23 different lenders. I know which lenders to use for particular situations and which lenders not to use.  One lender might have the best pricing on a Conventional loan with LPMI for a borrower with a 766 credit score putting down 5%, and another lender may have better pricing on a high balance VA loan for a borrower with a 660 credit score. My point is that it makes sense to speak to a few mortgage experts when you are considering obtaining a loan.  A broker usually has many different lenders at their disposal so they can shop your situation to get you the best deal.  

 

I hope this information is helpful.  Please feel free to contact me directly via email if you have any mortgage related questions.  I will get back to you promptly!

 

Michael Dicea 
 

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