If you want to take out a mortgage loan backed by Fannie Mae, you'll need a solid credit score. The government-backed agency requires minimum FICO credit scores for both purchase and refinance mortgages. If your score isn't high enough, you might struggle to obtain a conventional mortgage loan originated by a private lender. Most private lenders prefer working with borrowers who generally have high credit scores.
Credit Scores and Mortgage Lending
Lenders rely on your FICO credit score to help determine how likely you are to pay back your mortgage loan on time. The score tells lenders how well you've managed your credit in the past. If your score is low, it means that you've missed payments, paid bills late, or have high credit-card debt. Most lenders reserve their lowest interest rates for those borrowers with FICO scores of 740 or higher.
Fannie Mae's Relationship With FICO
Your loan-to-value ratio plays an important role in Fannie Mae's minimum requirements. The lower this ratio -- meaning that your mortgage loan amount is equal to a smaller amount of your home's value -- the lower your FICO score can be to qualify for a Fannie Mae-guaranteed home loan. If you're taking out a mortgage loan to purchase a principal residence or to refinance a principal residence, you'll need a FICO score of at least 620 to qualify for a Fannie Mae-guaranteed home loan, but your loan-to-value ratio must be less than 75 percent. If your loan-to-value ratio is greater than 75 percent, you'll need a minimum FICO score of at least 680.
These requirements change, though, if your monthly debts eat up too much of your gross monthly income. If your debts take up 45 percent or more of your gross monthly income, you'll need a credit score of at least 700 to qualify for a Fannie Mae-guaranteed loan if your loan-to-value ratio is greater than 75 percent. You'll need a score of at least 640 if your debt-to-income ratio is equal to or greater than 45 percent, and your loan-to-value ratio is less than 75 percent.
Tougher Requirements for Second Homes
Fannie Mae's credit-score requirements are more stringent when it comes to second homes. If you need a mortgage loan to purchase a second home or you want to refinance a mortgage on a second home that you already own, you'll need a minimum FICO credit score of 660 if your loan-to-value ratio is less than 75 percent. If this ratio is more than 75 percent, you'll need a minimum credit score of 680. If your debt-to-income ratio is 45 percent or higher, you'll need a minimum FICO score of 700 if your loan-to-value ratio is greater than 75 percent, and 680 if it's under that mark.
- Fannie Mae: Eligibility Matrix
- Bankrate: Good Credit Score Not Good Enough Anymore
- Bankrate: Debt-to-Income Ratio as Important as Credit Score
- Federal Deposit Insurance Commission. "203(b) Mortgage Insurance Program," Pages 21-22. Accessed Oct. 10, 2020.
- Federal Deposit Insurance Corporation. "Homeowners Protection Act," Pages V–5.1 and V–5.2. Accessed Oct. 10, 2020.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.