Today’s blog entry will give you some insight into the minimum credit score needed for a mortgage loan in California. We’ll also look at the average FICO credit score among home buyers who successfully closed on their loans. This will give you some idea of what score is needed to buy a house with a mortgage loan in California, as of summer and fall of 2017.
Minimum Credit Score for California Home Buyers
A key point to realize here is that there is no single cutoff point for credit scores, when it comes to qualifying for a mortgage loan in California. The standards can vary from one loan program to the next.
Additionally, credit scores are just one factor in a broader qualification process that also looks at your income, debts, and assets.
With that being said, the minimum credit score for a mortgage loan in California is generally somewhere around 600.
In fact, this is true for home loans nationwide. Data and surveys have shown that most lenders today set the bar somewhere around 600 or 620 for conventional mortgage loans. Borrowers who use FHA loans can sometimes qualify for financing with scores a bit lower than 600. These numbers are not necessarily set in stone, but they do represent current industry trends.
It’s also worth mentioning that some mortgage programs are easier to qualify for than others. For example, home loans that are guaranteed or insured by the government generally have more flexible qualification criteria than conventional home loans (that are not backed by the government). For this reason, FHA and VA home loans are often easier to qualify for than conventional.
Average FICO Scores, Based on Mortgage Type
To get a feel for the average credit score among home buyers in California, we can use data provided by Ellie Mae. This company provides mortgage origination and processing software to the lending industry. They also publish a monthly report that gives a lot of insight into current lending trends.
Here is some information about average credit scores in California, based on the July 2017 “Origination Insight Report.”
- In July 2017, the average FICO credit score for all closed loans was 724.
- The average FICO score for FHA-insured mortgage loans was a bit lower at 683.
- Conventional home loans (not insured by the government) had an average FICO of 753.
- Veterans Administration (VA) purchase loans had an average score of 711.
To be clear, these numbers do not represent the minimum credit score required for the various mortgage programs mentioned above. These are just the average FICO numbers among borrowers who successfully closed on their loans. (The averages are higher than the minimums, because borrowers who apply for these mortgage programs have scores that cover a broad spectrum.)
Big Difference Between Conventional and FHA Loans
The Origination Insight Report mentioned above also shows a clear distinction between FHA and conventional loans, as far as the average credit score among home buyers.
For conventional loans (those that are not guaranteed or insured by the government), most borrowers had credit scores of 600 or higher. Only 2.21% of conventional home loans went to borrowers with scores below 600. This is telling. While it’s possible to qualify with a score below 600, the vast majority of loans went to borrowers who fell into the 600-and-up category.
With FHA loans, however, there were quite a few borrowers with credit scores below 600 that successfully closed. According to the July 2017 report, 12.83% of FHA loans that actually closed went to borrowers with scores between 550 and 599. Another 5.74% of loans were issued to home buyers with scores ranging from 500 to 549.
This illustrates one of the key features of the FHA mortgage program — it can be a viable alternative for borrowers who can’t qualify for conventional financing due to a relatively low credit score.
Note: This article offers some insight into the minimum and average credit score among home buyers in California. It’s important to realize that these numbers are not always set in stone. Borrowers with relatively low credit scores who are well qualified in other areas might be able to obtain financing. These three-digit numbers are just one of many factors mortgage lenders review when considering a loan applicant.