What is the Minimum Credit Score for a Freddie Mac Loan? A Complete Guide

Getting a mortgage can be hard because there are a lot of things that lenders look at. One of the most important things they look at is your credit score. But what’s the lowest score you need to get a Freddie Mac loan? This guide will explain Freddie Mac’s credit score requirements and help you understand how your score affects the home loan process.

An Overview of Freddie Mac

First, let’s take a quick look at Freddie Mac. Freddie Mac, which stands for the Federal Home Loan Mortgage Corporation, is a government-backed company that buys mortgages from lenders and then sells them as mortgage-backed securities. This makes the mortgage market more liquid, which lets lenders fund more loans.

Freddie Mac sets standards for the loans it will purchase So lenders must originate mortgages that meet Freddie Mac’s qualifications As a result, Freddie Mac’s guidelines shape lending practices nationwide. Understanding these rules can help you navigate the mortgage process.

Why Your Credit Score Matters

Your credit score gives lenders insight into how reliably you’ve repaid debts in the past. The higher your score, the lower your perceived credit risk. This helps determine your mortgage eligibility and interest rate.

You need a certain minimum credit score to get most of Freddie Mac’s loans. So your score must exceed a certain threshold to qualify. Even scores above the minimum can impact rates and terms. This is why it’s very important to know Freddie Mac’s credit score rules.

Freddie Mac’s Minimum Credit Score Requirements

For most Freddie Mac conventional loans, a credit score of 620 is required. This is true for most fixed-rate and adjustable-rate mortgages on homes that are the main residence. However, higher minimum scores may be required in certain situations:

• Jumbo loans – For loan amounts exceeding conforming limits, you typically need at least a 740 score. Jumbo loans are larger than $647,200 in most areas.

• Cash-out refinances – If you’re taking cash out with a refinance, Freddie Mac usually requires a 680 minimum score.

• Investment properties – For investment property mortgages, minimum scores range from 680 to 720 depending on the specific program.

• Manufactured homes – You’ll need at least a 660 to finance a manufactured or mobile home.

• Renovation mortgages – Programs like HomeOne feature a minimum 640 credit score requirement.

These are just a few examples. Certain mortgage types or unique borrower situations may call for higher scores. It’s smart to check with your lender to confirm Freddie Mac’s minimum for your specific loan.

Factors That Impact Your Mortgage Eligibility

While the minimum credit score is important, it’s not the only factor lenders evaluate. Here are some other key points that determine your Freddie Mac loan eligibility:

• Down payment amount – In most cases, you’ll need at least 3% down for a conventional first mortgage. But 20% or more is ideal to avoid private mortgage insurance (PMI).

• Debt-to-income ratio – Your total monthly debt payments, including the new mortgage, usually cannot exceed 45% of your gross monthly income.

• Reserves – Expect to show reserves equal to at least two months of mortgage payments. More may be needed for jumbos or investment properties.

• Loan limits – The maximum conforming loan amount for Freddie Mac is $647,200 in most areas, rising to $970,800 in high-cost markets.

• Home value – An appraisal must demonstrate the property’s value supports the loan amount.

Meeting the minimum credit score opens the door, but you’ll still need to satisfy Freddie Mac’s other requirements. Having a higher score and solid finances can lead to the best terms.

How Your Credit Score Affects Your Interest Rate

The higher your score, the lower interest rate lenders can offer on your Freddie Mac mortgage. Here are some average rate ranges based on score:

• 760+ – Around the best rates available, such as 5% fixed.

• 700-759 – Competitive rates like 5.25% fixed.

• 680-699 – Slightly higher rates near 5.5% fixed.

• 660-679 – Above average rates, approximately 5.75% fixed.

• 640-659 – Less favorable rates close to 6% fixed or higher.

This demonstrates the savings a higher score can provide. For example, on a $300,000 loan amount, a 5% rate costs $1,610 in monthly principal and interest, while 6% equals $1,700 monthly. That’s $90 in savings each month with the better rate.

Tips for Improving Your Credit Score

If your score falls below Freddie Mac’s minimum, or you simply want the best rate possible, improving your credit should be a priority. Here are some tips:

• Pay all bills on time – Payment history is the biggest factor in your score. Set reminders to avoid late payments.

• Lower credit utilization – Keep balances low compared to limits, ideally under 30%.

• Monitor credit reports – Review reports from Equifax, Experian, and TransUnion for errors or suspicious activity.

• Avoid new credit – Limit new accounts before your mortgage application. Too many can lower scores.

With diligent credit management, you can boost your score and lock in better mortgage terms. Be sure to check your credit at least three to six months before applying. This gives time for improvements to fully impact your rating.

The Takeaway

Understanding Freddie Mac’s minimum credit score requirements empowers you to make informed mortgage decisions. While 620 is the typical minimum, your specific loan type and financial profile determine eligibility. The higher your score, the better interest rate you can obtain. With some work, it may be possible to raise your credit rating and qualify for a great Freddie Mac-backed mortgage. Discuss your options and score goals with a lender early in the home buying process.