Credit Score Needed for a Conventional Home Loan in California

What credit score is needed for a conventional mortgage loan in California?

This is a common question among home buyers in the Golden State, especially when you consider that the conventional mortgage loan is the most popular financing option. We’ll get into the details of this question below. But first, let’s start with some general “rules” regarding credit scores and mortgage loans.

In California, the minimum credit score for a conventional home loan usually falls somewhere between 600 and 660. It can vary based on the size of the loan, the specific mortgage product being used, and other factors.

Credit Score Needed for a Conventional Loan

Before we go any further, let’s define the terminology being used in this article.

• Credit score: A three-digit number from 300 to 850 that measures a borrower’s creditworthiness. There are several different credit-scoring models in use today, including the well-known FICO score. Generally speaking, a higher score makes it easier to qualify for a mortgage loan, while a lower one could have the opposite effect.
• Conventional loan: In a mortgage lending context, the term conventional refers to a “regular” mortgage loan that is not insured or guaranteed by the government. The conventional label distinguishes these loans from government-backed programs like FHA, VA and USDA.

Note: There are several different credit-scoring models in use today. In this article, we will focus our attention on the FICO score in particular. It’s the one most commonly used by banks and mortgage lenders, when reviewing loan applicants. The FICO range goes from 300 to 850.

There’s a reason for these commonly used thresholds. Many conventional loans are sold to Freddie Mac or Fannie Mae, through what’s known as the secondary mortgage market. Fannie and Freddie have specific requirements for the loans they buy — and the borrower’s credit score is one of those requirements.

For example, the Freddie Mac website states: “For Borrowers with a usable Credit Score, a minimum Indicator Score of 620 is required.” But for their low-down-payment Home Possible® mortgage product, they typically require a score of 660 or higher. So it can vary depending on the specific program you use.

In some cases, a home buyer might be able to qualify for a conventional mortgage loan in California with a credit score as low as 600. Exceptions can sometimes be made for borrowers with compensating factors, such as a relatively large down payment or significant cash reserves.

But for most conventional loans in California, the minimum credit score is usually set around 620 on the FICO scoring range.

Where Does My Score Come From?

Your score is based on the information compiled within your credit reports. You have three of these reports, because there are three reporting companies in the United States. They are TransUnion, Equifax and Experian. Each of these companies collects data from lenders and creditors as to how their customers repay their debts.

For instance, when you make payments toward a credit card or personal loan, that payment history gets reported to the three credit-reporting companies. If you make all of your payments on time, you will likely end up with a good score. If you miss payments, and the creditor(s) report those delinquencies to the reporting companies, you could end up with a lower score.

You can learn more about the various scoring factors by visiting MyFICO.com.

Why Do Lenders Care About These Scores?

If you can afford to pay cash for a house, your credit score doesn’t really matter at all. It only comes into the picture when you apply for a mortgage loan.

To be clear: Credit scores are not the only qualification requirement for a home loan. A borrower must also have sufficient funds in the bank to cover the down payment, closing costs, and other purchase-related expenses. Having a manageable level of debt goes a long way, as well.

But the credit score is one of the more important requirements.

So why do banks and lenders care so much about it? It has to do with risk. Your credit score is much more than just a number. It’s a risk-assessment tool. For better or worse, it tells lenders how much risk you bring to the table, as a potential borrower.

Statistical analysis shows that people with lower credit scores have a higher risk of mortgage default. A default occurs when the borrower stops making the monthly payments, for whatever reason. The lower the score, the higher the risk. Statistically, anyway.

Need a mortgage loan in California? Bridgepoint Funding serves home buyers and homeowners all across the Golden State. We offer a range of mortgage options including FHA, VA and conventional. Please contact us if you have financing questions or would like to apply for a loan.