Minimum Credit Score Needed for a Conventional Mortgage Loan in 2021

January 27, 2021 | By Brandon Cornett | © 2020, QualifiedMortgage.org

What is the minimum credit score needed to qualify for a conventional mortgage loan in 2021? That’s the question we’ll be addressing here today. We’ve examined current trends and standards within the mortgage industry to determine what kind of credit score might be needed for a conventional home loan in 2021.

The short answer: For most mortgage lenders in the U.S., the minimum credit score needed to qualify for a conventional home loan is around 620 to 630. That’s on the FICO scoring range, which goes from 300 up to 850.

But those numbers are not set in stone. As you’ll learn below, some lenders will offer home loans to borrowers with credit scores below 620. But those cases are the exception, rather than the rule. Most conventional mortgage loans go to borrowers with credit scores of 650 or higher.

Credit Score Needed for a Conventional Loan in 2021

Before we go any further, we should cover a couple of definitions.

Conventional loan: Within the mortgage industry, the term “conventional” refers to a home loan that is not guaranteed or insured by the federal government. This term is used to distinguish “regular” mortgage loans from the government-backed programs like FHA and VA.

Credit score: This is a three-digit number based on the information found within your credit reports. Mortgage lenders use credit scores as a kind of risk indicator. Borrowers with a history of repaying all of their debts tend to have higher scores, and are therefore a lower risk to the lender. Borrowers with lower scores (which often results from late payments and delinquencies) represent a higher risk to the lender.

So, what is the minimum credit score needed for a conventional mortgage loan in 2021?

The first thing to understand is that there is no minimum standard across the entire industry. Mortgage lenders are free to determine their own credit-score requirements, and it can vary from one bank or lender to the next.

With that being said, most conventional mortgage loans today are going to borrowers with credit scores of 650 and higher. A smaller percentage of loans are going to borrowers with credit scores between 600 and 649. And very few go to borrowers with credit scores below 600.

So the minimum credit score for a conventional mortgage loan tends to fall somewhere in the low- to mid-600 range. A lot of the lenders we have spoken to set the bar somewhere around 620 or 630, on the FICO scoring scale.

Additional Insights From Ellie Mae

To learn more about the subject, we reviewed data and reports provided by Ellie Mae. This is a software company that serves the mortgage industry. Their software programs are used to process many of the home loans that are originated in the U.S. each year.

Ellie Mae also publishes something known as the “Origination Insight Report.” This insightful report gives us a much better picture of current mortgage lending standards, trends and requirements.

Their most recent report contained data through the end of December 2020. So it’s a good representation of where we are right now, in early 2021.

Here is what we learned from their latest report, regarding the minimum credit score for conventional mortgage loans:

  • During the month of December, 98.93% of all conventional loans processed through their software had credit scores of 650 or higher on the FIFO scoring range.
  • In other words, the vast majority of borrowers who qualify for conventional loans have credit scores of 650 or above.
  • By contrast, only 1.03% of borrowers using a conventional loan had a credit score between 600 and 649.
  • This means it is possible to qualify for a conventional loan with a score lower than 650, but it’s a lot less common.
  • And once you drop below a score of 600, there are practically no loans being originated. Only 0.04% of conventional loans had a credit score between 500 and 599.

Here’s what all of this means:

Borrowers with a 650 or higher stand a much greater chance of qualifying for a conventional mortgage loan. Borrowers with a score that falls between 600 and 649 might have to shop around a bit more, to find a lender. But it’s still do-able.

Borrowers with credit scores below 600 (on the FICO scale) will likely have a hard time qualifying for a conventional mortgage loan in 2021.

But again, none of this is written in stone. Some mortgage lenders are more flexible than others, when it comes to their credit-score requirements and other criteria.

Bottom line: The statistics above give us some good insight into where borrowers want to be, in terms of qualifying for a mortgage loan. But these states are not the “law of the land.”

FHA Loans Can Be More ‘Forgiving’

The Origination Insight Report mentioned above also reinforced an idea we have known for some time. FHA home loans tend to be more forgiving, when it comes to the borrower’s credit score.

FHA loans are insured by the federal government, through the Federal Housing Administration (part of HUD). This insurance gives lenders an added layer of protection against borrower default, or failure to repay. As a result, the lenders who offer FHA loans are often more flexible with their credit requirements.

Consider the difference:

  • Conventional: During the month of December 2020, only 1.03% of conventional home loans had a credit score between 600 and 649.
  • FHA: During that same month, nearly 20% of FHA loans had FICO scores that fell within the 600 – 649 range.

This shows that the FHA mortgage program is a more popular option for those with lower credit scores. And that’s not surprising, when you consider the government backing associated with that program.

The point being: If you have trouble qualifying for a conventional mortgage loan in 2021 due to your credit score, you might want to consider using an FHA insured home loan. And if you happen to be a military member or veteran, you should take a close look at the VA’s program.

Disclaimer: This article looks at the minimum credit score needed for a conventional mortgage loan in 2021. It is based on current trends and averages across the industry. But none of this is written in stone. There are exceptions to every rule. Every lending scenario is different because every borrower is different. Credit scores are just one of several factors mortgage lenders consider when reviewing loan applications.