Not everyone has great credit.
Medical collections, missed payments, high credit card balances – they all impact your credit score.
Fortunately, you don’t need impeccable credit to buy a home. In fact, some loan programs allow credit scores up to 580.
How to Get a Mortgage with a Low Credit Score
The problem that most people in credit difficulty face is the “no” from the lender. But a “no” is not always a “no”. A “no” can mean “we don’t want your business”.
Lenders “make” their own rules about the type of applicant they will serve. They don’t have to follow the guidelines “to the letter”.
For example, official FHA guidelines say you can get a 3.5% loan with a score of 580. But many lenders set their own minimum at 620 or even 640.
What does this mean to you? Apply to many lenders, especially if you have a lower credit score.
You may be turned down by one lender and accepted with open arms by another.
Credit score minimums
The following minimums apply to the main types of loans available in today’s market
- Conventional/compliant: minimum credit score of 620
- FHA Loans: minimum score of 580 (down 3.5%); 500 points (10% down)
- VA loans: No minimum score per guidelines, but lenders set minimums around 620
- USDA loans: 640 minimum, although some lenders approve lower scores
Keep in mind that if you have bad credit, an FHA, VA, or USDA loan might be best for you. Conventional loans come with high rates for applicants with credit scores below 680.
Start early if you have bad credit
There is no “unpardonable sin” when it comes to credit history.
Any derogatory credit can be overcome with better habits and time.
If you’re in the market to buy a home, it’s best to know your credit issues so you can start fixing them. Sometimes you can increase your score in a few days with a fast recovery.
Other times, you need to make timely payments for 6-12 months before your credit score starts to rise again.
It’s best to know your credit situation before you get serious about buying a home. That way, when you’re ready, your credit is too.
How do I check my eligibility for a home loan?
The first step to buying a home is to get pre-approved through an application with a lender. Even if you may not qualify now, the lender can tell you what you need to do to improve your credit and be on your way to home ownership.
Check out our first article in this series: “What is the first step to buying a house? »
The information contained on The Mortgage Reports website is provided for informational purposes only and does not constitute advertising for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent company or affiliates.