Understanding credit scores for home loans
Credit scores typically range from 300 to 850. Higher scores generally indicate better creditworthiness and may improve approval chances and loan terms, but a perfect score is not required to qualify for a home loan.
How lenders evaluate scores
Lenders usually obtain a credit report from Equifax, Experian, and TransUnion for every applicant. With two applicants, the lender may review six individual scores.
Which score is used?
The lender identifies the middle score for each applicant by ignoring the highest and lowest scores. When there are multiple applicants, the lowest middle score is generally used to qualify the loan.
Lender-chosen qualifying credit score
For each applicant, the lender generally identifies the middle of the three bureau scores. When two applicants apply together, the lower of their two middle scores is generally used as the qualifying credit score for the loan.
Applicant 1
Middle score: 699
Applicant 2
Middle score: 711
The qualifying score in this example
The lender would generally use 699, because it is the lower of the two applicants’ middle scores.
FICO Scores 2, 4, and 5
The mortgage scores a lender reviews may not be the same scores shown by a credit card company or free credit-monitoring service. Mortgage lenders commonly use an older FICO model from each credit bureau:
Equifax
FICO® Score 5
Experian
FICO® Score 2
TransUnion
FICO® Score 4
Why are there so many different credit scores?
The score you see through a credit card company, monitoring service, auto lender, or credit bureau may differ from the score used for a mortgage application.
Not every creditor reports everywhere
Some creditors report to only one or two bureaus. Each bureau may therefore contain different account information and produce a different score.
Different scoring models
Each bureau supports multiple scoring models for mortgage lending, auto lending, insurance, credit cards, and other purposes. The same report can generate several different scores.
Different sources provide different scores
Credit card issuers, bureaus, and third-party services may provide FICO or VantageScore models that do not match the mortgage scores used by lenders.
How to monitor intelligently
- Review all three reports regularly.
- Confirm which scoring model is displayed.
- Ask a lender which scores will be used.
- Use monitoring tools to track trends, not guarantee a mortgage result.
Getting a copy of your credit report
You can obtain your report from several sources. Reviewing all three bureau reports before applying can help you identify errors, missing accounts, unfamiliar inquiries, and derogatory items that may need attention.
Where can you review mortgage FICO scores?
At this time, myFICO.com is the only consumer source LoanApproval101 is aware of that provides the FICO 2, 4, and 5 mortgage scores commonly used by mortgage lenders. Access requires a paid subscription to the Advanced or Premier plan. The Premier plan also includes a simulator for FICO Scores 2 and 4.
Minimum credit score requirements
The figures below are general program guidelines. Individual lenders may apply stricter standards, and meeting a published minimum does not guarantee loan approval.
500–579 with at least 10% down
Key takeaway
Higher scores can improve approval chances and access to better loan terms. Ask the lender about its specific minimums before authorizing a credit review.
Multiple pulls, hard pulls, and soft pulls
Borrowers often worry that comparing lenders will damage their credit. Mortgage inquiries are treated differently from unrelated applications for new credit, and many lenders now offer soft-pull options for early conversations.
Mortgage shopping window
CFPB guidance explains that multiple mortgage inquiries within a 45-day period are generally treated as a single inquiry for scoring purposes.
Soft credit pull
- Does not affect the credit score.
- Useful for prequalification and early loan discussions.
- Available from many lenders.
Hard credit pull
- May lower the score by a few points.
- Used for formal application or approval.
- Often completed once a property is under contract.
Ask before the lender pulls credit
If you are still exploring options, ask whether the lender can begin with a soft pull. Be prepared for a hard inquiry later when you proceed with formal approval.
Applying with non-traditional credit
Certain loan programs may accommodate borrowers who do not have a traditional credit score. The lender may instead evaluate documented monthly obligations that do not normally appear on a credit report.
Possible accounts
- Rent payments
- Utilities
- Car insurance
- Cell phone bills
- Gym memberships
Payment history
Expect to document at least 12 months of consistent, on-time payments with statements, receipts, canceled checks, or verification from the provider.
Not a replacement for bad credit
Non-traditional credit generally cannot be used to override collections, late payments, charge-offs, or other negative accounts already appearing on a credit report.
Possible higher cost
Some borrowers without an established score may face higher rates or additional lender fees.
Possible larger down payment
A lender may require additional borrower investment to reduce perceived risk.
Possible lower debt-to-income limit
The allowed monthly mortgage payment may be more conservative than it would be for a borrower with established credit.
Home loans after bankruptcy
A bankruptcy does not permanently prevent mortgage approval. Most traditional loan programs require a waiting period and evidence that the borrower has re-established financial stability.
Conventional
- Chapter 7: generally four years from discharge.
- Chapter 13 discharged: generally two years from discharge.
- Chapter 13 dismissed: generally four years from dismissal.
FHA
- Chapter 7: generally two years from discharge.
- Chapter 13: may be considered after 12 months of on-time plan payments, usually with trustee or court approval.
VA
- Chapter 7: generally two years from discharge.
- Chapter 13: may be considered after 12 months of satisfactory payments, generally with required approval.
USDA
- Chapter 7: generally two years from discharge.
- Chapter 13: may be considered after 12 months of on-time payments, subject to program and lender requirements.
Extenuating circumstances are narrowly defined
Events such as the death of a wage earner or involuntary loss of employment may be considered. Divorce and many other events are generally not treated as extenuating circumstances.
Home loans after foreclosure
Foreclosure waiting periods are measured from the completion date. The borrower must generally rebuild credit and demonstrate stable financial behavior before qualifying again.
Conventional
Generally seven years
May be reduced to three years with documented extenuating circumstances and additional requirements.
FHA
Generally three years
The borrower must show financial recovery. Additional restrictions may apply when the prior loan was FHA-insured.
VA
Generally two years
Prior use of VA entitlement may affect available entitlement for the next purchase.
USDA
Generally three years
Stricter requirements may apply if the foreclosed loan was previously guaranteed by USDA.
How student loans affect mortgage qualification
Student loans affect the debt-to-income ratio even when the loan is deferred, in forbearance, or reporting a $0 payment. The qualifying payment depends on the mortgage program and the documentation available.
Fannie Mae
Common calculation: Often 1% of the outstanding balance when an acceptable payment is not documented
$100,000 balance example: $1,000 per month
Freddie Mac
Common calculation: Often 0.5% of the outstanding balance when required
$100,000 balance example: $500 per month
FHA
Common calculation: Often 0.5% when an acceptable documented payment is unavailable
$100,000 balance example: $500 per month
VA
Common calculation: 5% of the balance divided by 12, unless a qualifying lower payment may be used
$100,000 balance example: Approximately $417 per month
USDA
Common calculation: Often 0.5% unless an acceptable lower payment is documented
$100,000 balance example: $500 per month
When a payment is reported
Lenders may use the payment shown on the credit report when it satisfies the applicable program rules. A reported $0 payment may require an alternate calculation.
Loan forgiveness
Loans generally cannot be excluded merely because forgiveness has been requested. The lender may require formal servicer documentation identifying the accounts and confirming that no further payments will be required.
Other negative credit items lenders evaluate
Lenders look beyond the numeric score to determine whether the borrower has demonstrated a reliable pattern of managing financial obligations.
Late payments
Recent 30-day or greater delinquencies can signal instability. Mortgage, auto, and revolving-account late payments may receive particular attention.
Better move
Establish a consistent 12- to 24-month pattern of on-time payments and dispute genuine reporting errors promptly.
Charge-offs
A charge-off remains a debt even after a creditor writes it off for accounting purposes. A lender may require the balance to be resolved.
Better move
Ask the loan officer how the account will be treated before paying or reopening an older debt.
Collections
Medical collections and non-medical collections may be evaluated differently. Depending on the loan program, type, amount, and automated-underwriting findings, payment may or may not be required.
Better move
Do not assume paying a collection will improve the mortgage score immediately. Discuss the account with the lender first.
Bankruptcies
Bankruptcy lowers credit scores and creates program-specific waiting periods. Chapter 13 borrowers may need court or trustee approval.
Better move
Rebuild with small, manageable accounts and maintain perfect payment history after discharge.
Foreclosures and short sales
These events create waiting periods and may affect eligibility for a new mortgage depending on the program and circumstances.
Better move
Confirm the completion date and gather documentation early.
Repossessions
A repossession indicates default and may leave a deficiency balance after the asset is sold.
Better move
Determine whether a balance remains and ask the lender how it must be handled.
Recent hard inquiries
Numerous unrelated applications for new credit may lower the score and suggest increased borrowing risk.
Better move
Limit new credit applications before and during the mortgage process.
Strong recovery habits
- Pay every account on time.
- Reduce revolving balances.
- Avoid new derogatory events.
- Review all three reports for errors.
- Speak with a loan officer before changing accounts.
The lender evaluates the complete pattern
One negative item does not always cause denial, but several recent risk factors together can require a higher score, larger down payment, lower debt-to-income ratio, or a different loan program.
Disputed accounts are still visible to the lender
Placing an account in dispute does not hide the account from the mortgage lender. The lender can still see the account, balance, payment history, and dispute notation on the credit report.
What a dispute does
A dispute tells the credit bureaus that you challenge information being reported. It may temporarily change how the account is treated by some scoring models, but the account remains visible during mortgage underwriting.
Why the lender may require removal
Some mortgage programs or automated-underwriting findings may require certain disputed accounts to be removed from dispute when the disputed balance exceeds an applicable limit or when the account could affect approval.
Removing a dispute can change the score
Once the dispute notation is removed, the credit score may change because the account is again fully included in the scoring calculation. The score can increase, decrease, or remain similar depending on the account history.
Best approach
- Do not dispute accounts simply to try to improve a mortgage score.
- Discuss existing disputes with the loan officer before applying.
- Allow time for the bureaus to update the report if a dispute must be removed.
- Provide documentation when the information is genuinely inaccurate.
How to strengthen your credit profile
Review all three credit reports
Look for inaccurate balances, unfamiliar accounts, duplicate collections, and incorrect late-payment reporting.
Protect payment history
Make every payment on time. Recent late payments can carry more weight than older derogatory events.
Manage revolving balances
The lower the revolving balances, the better. Reducing credit-card balances can improve utilization, strengthen the overall credit profile, and may help the qualifying score.
Avoid unnecessary new credit
New accounts, inquiries, and monthly obligations can affect the score and debt-to-income ratio.
Keep credit inquiries to a minimum
Avoid unnecessary applications for credit before and during the mortgage process. Too many recent inquiries can lower the score and may create questions about new debt that has not yet appeared on the credit report.
Consult a lender early
Before paying old collections, closing accounts, disputing information, or opening a credit-builder product, ask how the action may affect mortgage approval.