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Your credit score is one of the most important factors in getting a mortgage.
Each mortgage program has its own minimum credit score requirements. Credit scores range from 300 to 850, but with a credit score of 640, you would meet the minimum requirements for major mortgage programs.
However, there are steps you can take to improve your credit score and potentially earn better interest rates.
Here’s what you need to know about credit scores of 640 or higher:
What is the value of a 640 credit score?
Lenders tend to group credit scores into ranges. On a scale of 300 to 850, a credit score of 640 is in the “correct” range.
Here are some benefits of having a 640 credit score:
- You might be eligible for the loan. Among most conventional and government-insured mortgage programs, a 640 credit score meets or exceeds minimum requirements.
- You can benefit from a favorable interest rate. Because you have fair credit, lenders are more likely to offer you a good interest rate than people with poor credit scores.
Learn more: What is a mortgage rate and how do they work?
Average mortgage rates for a 640 credit score
Credit scores are based on the information in your credit reports. These scores measure the quality of your debt management in the past and help lenders predict whether you will pay off a loan as agreed in the future.
With good credit, you may be eligible for a mortgage and get a better interest rate.
The table below shows a sample of the rates of our partner lenders. You can fill in your financial information and select a range of Fair credit scores to see what type of mortgage rates are available to you in your area.
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The rates in this table display an Annual Percentage Rate (APR), which includes the interest rate on the loan plus any additional fees and costs charged by the lender.
The APR is a good metric to check when comparing mortgage offers because it reflects the total cost of borrowing. Qualifying for a lower APR can help you save thousands of dollars over the life of the loan.
While you should focus on getting your credit score as high as possible, you don’t have to be perfect. Improving your credit score by just a few points could put you in the next credit score range and give you access to better rates.
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Checking rates will not affect your credit score.
Other factors behind your mortgage rate
Having a good credit score can result in lower rates, but it is not the only factor behind a lender’s offer. Lenders look at broader economic and personal financial factors when determining the terms of a mortgage:
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You have some control over some of these factors:
- Deposit: If your down payment is at least 20% of the purchase price of the house, you will avoid paying private mortgage insurance (PMI) on a conventional loan. You are also more likely to receive a better interest rate.
- Amount of the loan : A smaller mortgage is less risky for the lender, so borrowing less money can increase your chances of getting a good interest rate. Take this into account when budgeting for your home.
- Term of the loan: Most buyers choose a loan term of 15 or 30 years. Typically, the shorter loan term comes with a lower interest rate because the lender takes less risk.
- Debt-to-income ratio: Lenders use your debt-to-income ratio to measure how much of your income goes to paying off debt each month. Most lenders require homebuyers to have a DTI ratio of around 45% or less, although a lower ratio increases your chances of getting a low interest rate.
One way to find a good rate is to compare the rates of different lenders. Credible makes it easy to compare interest rates on conventional loans from several lenders. You can view the prequalified rates from all of our partner lenders, and the process can be completed entirely online.
Home loan options for a 640 credit score
Borrowers with a credit score of 640 or more may be eligible for government insured home loans in addition to conventional mortgages. Here are your main options:
FHA loans are guaranteed by the Federal Housing Administration – and due to lenient credit and down payment requirements, these loans are popular among first-time homebuyers and borrowers with low credit scores.
If your credit score is at least 580, you may qualify for the loan and be able to deposit as little as 3.5%. Borrowers with credit scores between 500 and 579 may be eligible as long as they deposit at least 10%.
If you are a military veteran, active duty member, or qualifying surviving spouse, you may be eligible for a loan guaranteed by the United States Department of Veterans Affairs.
Instead of a down payment, borrowers pay a financing fee ranging from 1.4% to 3.6% of the purchase price of the home.
The VA does not set a minimum credit score to qualify for this type of home loan, although lenders can set their own requirements.
USDA loans come in two forms: direct and guaranteed. Direct loans are funded by the US Department of Agriculture, while secured loans are offered by private lenders and backed by the USDA.
To qualify for a USDA loan, you will need to purchase or build a house in an eligible rural area. The minimum credit score is 620, although most lenders set their requirements at 640.
Conventional loans are not guaranteed by government agencies; instead, the lender usually sells the loan to Fannie Mae or Freddie Mac.
To qualify for any of these home loans, you will generally need a credit score of at least 620 and a minimum of 3%.
How to increase your credit score
A higher credit score can help you qualify for a home loan and a lower interest rate, saving you thousands of dollars over the life of the loan.
If you’ve monitored your credit and determined that it needs improvement, here are some ways to improve your credit rating:
- Become an authorized user on a friend or family member’s credit card account.
- Pay off some or all of your debt.
- Set monthly reminders so you never forget to schedule a payment.
- Open only the credit accounts you need.
- If any of your accounts are overdue or you’re not sure where to start, consider contacting a credit counseling agency.
Keep reading: How Your Credit Score Affects Mortgage Rates