Are you ready to purchase a home, but not sure your credit can get you in the front door?
Homebuyers with low credit scores can still get a mortgage, but don’t expect a ton of options or the lowest published interest rates.
However, with certain loan programs and lenders, it may be possible to obtain financing with low credit — especially if you can make a larger down payment, prove large cash reserves, and have a low debt-to-income ratio.
In some cases, low-credit mortgages aren’t ideal, but getting a mortgage sooner rather than later really can pay off in the long run.
What Is Considered a Low Credit Score for a Mortgage?
When it comes to conventional mortgages, any score under 620 is heavily scrutinized. Even though a 620 credit score is considered fair credit, a score below this level is essentially too low for a conventional mortgage. You’ll likely need to use a government-backed loan program like FHA that can accommodate lower credit scores.
About 15% of American consumers have credit scores in the 500 to 599 range on an 850-point scale, which is considered poor to fair credit, according to FICO. Another 10% are in the 600 to 649 range, which is considered fair credit.
You’re in good company if your score is less than ideal, and the right lender can help you get a mortgage or explain how to get approved in the future.
FHA Loan Credit Score Requirements and Options
With a score of at least 580, you can put down just 3.5% with an FHA loan. FHA loans have the easier credit score requirements than conventional loans. They are also quicker to offer borrowers a second chance after a bankruptcy or foreclosure.
Still, you might find that some FHA lenders will not work with you unless your score is at least 620. They’re allowed to have their own, stricter requirements.
As a result, you may have to put more work into loan shopping if your score is below 620. Historically, most FHA borrowers have credit scores in the 650 to 699 range.
Should You Improve Your Credit or Buy Now?
Most experts agree: Don’t put off buying a home, even if your credit isn’t the best.
Even though you will likely pay a little more for a mortgage if you have bad credit, go with where you are right now. In today’s market, time works against you as home prices are increasing. Borrowers could choose to wait a year and improve their scores to get a better interest rate, but increases in prices may negate any credit score gains they make.
Tips for Getting a Mortgage with Low Credit
1. Get help from a mortgage lender and let me do some of the work for you. I’m incentivized to get you approved, so I can help you understand the different options available to you.
2. Don’t give up easily. You may hear a lot of no’s from lenders before you hear a yes.
3. Spend a few months improving your credit before applying for a mortgage. Paying down high-balance credit cards, making on-time payments and disputing credit report errors can help your score considerably.
4. Apply as soon as possible. Lenders often use credit simulators that can make credit improvement suggestions for you if you need help getting approval.
Credit Repair Options
If you need to improve your credit score to qualify for a mortgage or earn a lower interest rate, I recommend that you reach out to Jennifer Amsbaugh and see what she can do: https://lendingcoach.net/credit-repair-primer/
Her program is designed for individuals and families struggling to pay debts while saving money for daily expenses at the same time. She has a particular methodology that has proven to be effective in improving scores.
Secondly, if you don’t have any credit and need to build it, there are some quick and easy options available. You can find that here: https://lendingcoach.net/establishing-build-credit/
In Conclusion
There are those out there who won’t be able to qualify for a mortgage…and some people won’t have the mitigating factors they need—like 10% down—to qualify despite having bad credit.
But having bad credit doesn’t have to stand between you and your desire to own a home.
Credit history is only one piece of your overall financial picture. If you have more questions about your credit and how it impacts your ability to finance a home, please do reach out to me, as it would be my pleasure to help!
