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Can You Get A Mortgage With Fair Credit?

Peter Miller
The Mortgage Reports contributor

Mortgage With Fair Credit: Yes, It’s Possible

Many people with fair credit think they can’t get a mortgage. After all, those with fair credit are not among the credit score elite — those individuals with credit scores of 800 or more.

Instead, fair-credit borrowers are likely to have some late payments and maybe even a missed payment or two.

But there is some good news: You can get a mortgage with fair credit.

In fact, savvy lenders may be very interested in your business.

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Fair Credit Explained

Before you can figure out how to get a mortgage, you must understand what “fair credit” really means. This is a problem because the definition of fair credit is fuzzy. Like beauty, it’s in the eye of the beholder.

Experian, one of the three big credit reporting bureaus, says fair credit includes credit scores from 580 to 669.

“Approximately 28 percent of consumers with a credit score between 580 to 669 are likely to become seriously delinquent in the future,” says the company.

The catch is that not everyone agrees. An Internet search can find a variety of “fair credit” definitions, none of them alike. Not only that, what’s “fair credit” one day might be something else tomorrow as lending standards change.

For our purposes, let’s say that fair credit ranges from 620 to 699, numbers high enough to interest many lenders.

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Fair Credit & Lender Standards

If you think that mortgage requirements have gotten tighter during the past few years,  you’re right.

“Only the best borrowers are getting loans today and these loans are so thoroughly scrubbed and cleaned before they’re made that hardly any of them end up going into default,” reports the Urban Institute. “A near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.”

While lender requirements may have tightened, there are two important points to be made: First, there are loans available to those with fair credit. Second, you can improve your credit standing with a little strategic planning.

Fair Credit Mortgages

Lenders need borrowers with fair credit.

That’s because lenders have overhead. Borrowers in every credit spectrum help them bulk-up profits and stay in business.

Not every borrower has an 800 credit score. It follows that lenders must also consider borrowers with fair credit as a way to maximize production and profits. In effect, lenders want those with fair credit to get financing.

If you have fair credit, mortgages to consider include:

1. FHA financing

FHA mortgages allow borrowers to finance with 3.5 percent down, providing they have a credit score of at least 580.

Below 580, there’s a ten percent down payment requirement. Also, manual underwriting is now required for borrowers with credit scores under 620 and a high debt-to-income ratio. In other words, lenders will want to check every number for borrowers without pristine credit.

2. VA mortgages

The VA does not have an official credit score minimum. However, actual VA lenders may add their own credit score requirements, and many do — typically, 620 to 660.

VA loans are available to home buyers with eligible military experience, and can be had with no money down.

3. Conventional 97 percent financing

The new Fannie Mae HomeReady™ mortgage, and the Freddie Mac Home Possible Advantage® are two examples of three percent down conventional loans.

A variety of new private-sector offerings are all available with three percent down, too.

Many have flexible underwriting guidelines for those income doesn’t exceed eligibility limits.

Certain portfolio, non-QA or so-called “Alt-A” products. These have higher down payment requirements and interest rates, but are geared toward those with lower credit scores.

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Going From Fair Credit To Good Credit

It may well be that you have fair credit today, but this need not be a permanent condition.  Your credit standing can change, and it can change with some speed.

The pioneering FICO-brand credit scoring system uses five factors to rate your financial standing. Each factor has a certain “weight” on your credit score.

  • Credit history (35 percent)
  • Amount owed on credit (30 percent)
  • Length of credit history (15 percent)
  • New credit (10 percent)
  • Credit mix (10 percent)

These categories suggest three quick steps you can take to get better credit.

First, do not open new accounts. When a retailer offers $10 off if you will use their credit card, you’re being asked to open a new line of credit. Don’t be tricked. Since new accounts hold down credit scores, you’re better off paying the $10.

Second, credit history is important, but most important of all is recent credit history — what you’ve done in the past few months.

Make a point to pay all bills in full and on time. This is not only good for your credit standing, but will also end costly and unnecessary late payment penalties.

Third, review your credit report. A 2013 study by the Federal Trade Commission found that “five percent of consumers had errors on one of their three major credit reports that could lead to them paying more for products such as auto loans and insurance.”

How big an error? At least 25 points — enough to change an individual’s credit standing.

If you find outdated or erroneous information, remove it with a rapid rescore. This service can cost a few hundred dollars, but can raise your score by 100 points or more in days.

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Monitor Your Credit Improvement

You can get a free copy of your report at AnnualCreditReport.com, a site authorized by federal law.

Do you see any factual errors? Outdated information? Mistakes can lower your credit standing, and perhaps substantially. If you see problems contact the credit reporting agency immediately and ask how to get the offending items removed.

So yes, you can get a mortgage with fair credit, but even better, you can improve your credit standing — a sure path to lower rates and easier mortgage applications.

What Are Today’s Fair Credit Mortgage Rates?

Mortgage rates today are low and affordable — even if you have fair credit.

Check today’s mortgage rates and get approved for a home purchase or refinance. You could be surprised at what you can qualify for.

Verify your new rate (Jul 18th, 2019)