Your credit score is one of the most important factors that go into getting a mortgage.
Every mortgage program has its own minimum credit score requirements. Credit scores range from 300 to 850, but with a 640 credit score, you’d meet the minimum requirements among the major mortgage programs.
There are, however, steps you can take to improve your credit score and potentially get better interest rates.
How good is a 640 credit score?
Lenders tend to group credit scores into ranges. On a scale of 300 to 850, a credit score of 640 falls into the “fair” range.
Here are just a few advantages to having a 640 credit score:
- You may qualify for the loan. Among most conventional and government-insured mortgage programs, a 640 credit score meets or exceeds minimum requirements.
- You may receive a favorable interest rate. Because you have fair credit, lenders are more likely to give you a good interest rate than people in the poor credit score range.
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 how well you’ve managed debt in the past and help lenders predict whether you’ll repay a loan as agreed in the future.
With strong credit, you may qualify for a mortgage loan and receive a better interest rate.
The table below shows a sampling of rates from our partner lenders. You can fill in your financial information and select a credit score range of Fair to see what kind of mortgage rates are available to you in your area.
The rates in this table display an annual percentage rate (APR), which includes the loan’s interest rate plus any fees and extra costs charged by the lender.
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.
For example: If you’re taking out a 30-year, $200,000 mortgage with an APR of 6.986% (and assuming you put down 20%), your monthly premium and interest payment would amount to $1,329.
Someone with a credit score of 620, on the other hand, might get an APR of 7.701%. Their monthly payment would be $1,426, which is a difference of $97 per month or $35,040 over the life of the loan.
While you should focus on getting your credit score as high as possible, you don’t need to be perfect. Improving your credit score by just a few points might put you in the next credit score range and give you access to better rates.
Be sure to use a home affordability calculator to understand what you can afford based on your credit score.
Other factors behind your mortgage rate
Having a good credit score can lead to lower rates, but it isn’t the only factor behind a lender’s offer. Lenders look at broader economic factors and personal financial factors when determining mortgage loan terms:
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You have some control over some of these factors:
- Down payment: If your down payment is at least 20% of the home’s purchase price, then you’ll avoid paying for private mortgage insurance (PMI) on a conventional loan. You’re also more likely to receive a better interest rate.
- Loan size: A smaller mortgage poses less risk for the lender, so borrowing less money can help your chances of getting a good interest rate. Consider this when setting your home budget.
- Loan term: Most homebuyers choose a loan term of either 15 years or 30 years. Generally, the shorter loan term comes with a lower interest rate because the lender is taking on less risk.
- Debt-to-income ratio: Lenders use your debt-to-income ratio to measure how much of your earnings go toward debt payments each month. Most lenders require homebuyers to have a DTI ratio of around 45% or less, though a lower ratio increases your chances of getting a low interest rate.
Comparing rates from different lenders is one way to find a great rate.
Home loan options for a 640 credit score
Borrowers with a credit score of at least 640 may qualify for government-insured home loans in addition to conventional mortgages. Here are your main options:
FHA loans
FHA loans are backed by the Federal Housing Administration — and because of the 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, then you may qualify for the loan and be able to put down as little as 3.5%. Borrowers with credit scores in the 500-to-579 range may qualify as long as they put down at least 10%.
- Upsides: You can qualify even with poor credit.
- Downsides: Most FHA loans come with mortgage insurance, both as an upfront premium and as a monthly cost baked into the mortgage payment.
VA loans
If you’re a military veteran, active-duty service member, or an eligible surviving spouse, you may qualify for a loan backed by the U.S. Department of Veterans Affairs.
Instead of a down payment, borrowers pay a funding fee ranging from 1.4% to 3.6% of the home’s purchase price.
The VA doesn’t set a minimum credit score to qualify for this type of home loan, though lenders may set their own requirements.
- Upsides: You don’t have to make a down payment or pay for mortgage insurance.
- Downsides: VA loans are only available to eligible military members, veterans, and surviving spouses.
USDA loans
USDA loans come in two forms: direct and guaranteed. Direct loans are funded by the U.S. Department of Agriculture, while guaranteed loans are offered by private lenders and backed by the USDA.
To qualify for a USDA loan, you’ll need to buy or build a home in an eligible rural area. The minimum credit score is 620, though most lenders set their requirements at 640.
- Upsides: You may qualify with a credit score as low as 620.
- Downsides: You must meet income requirements, and you’ll need to buy or build a home in an eligible rural area.
Conventional loans
Conventional loans aren’t backed by government agencies; instead, the lender usually sells the loan to Fannie Mae or Freddie Mac.
To qualify for one of these home loans, you’ll typically need a credit score of at least 620 and have to put down a minimum of 3%.
- Upsides: You can avoid mortgage insurance if you put down at least 20%. Even if you have to pay PMI in the beginning of your loan term, you can eventually remove this cost once your loan-to-value ratio reaches at least 80%.
- Downsides: The minimum credit score requirement is one of the highest on this list.
How to raise your credit score
A higher credit score can help you qualify for a home loan and a lower interest rate, potentially saving you thousands of dollars over the life of the loan.
If you’ve been monitoring your credit and determined it needs some work, here are some ways to improve your credit scores:
- Become an authorized user on a friend or family member’s credit card account.
- Pay down some or all of your debts.
- Set monthly reminders so you never forget to schedule a payment.
- Only open the credit accounts that you need.
- If some of your accounts are delinquent or you’re not sure where to start, consider contacting a credit counseling agency.
Keep Reading: How Your Credit Score Impacts Mortgage Rates
