Not everyone has great credit.
Medical collections, missed payments, high credit card balances — they all take their toll on your credit score.
Luckily, you don’t need impeccable credit to buy a home. In fact, some loan programs allow credit scores down to 580.
How to get a mortgage with a low credit score
The problem most credit-challenged people face is the lender’s “no.” But a “no” is not always a “no”. A “no” might mean “we don’t want your business.”
Lenders “make up” their own rules about what kind of applicant they will serve. They don’t have to follow “by-the-book” guidelines.
For instance, official FHA guidelines say you can get a 3.5% down loan with a 580 score. But many lenders set their own minimum at 620 or even 640.
What does that mean for you? Apply with many lenders, especially if you have a lower credit score.
You may be denied at one lender, and accepted with open arms at another.Check your eligibility for a low-credit home loan here. (Mar 24th, 2019)
Credit score minimums
The following minimums apply to the major loan types available in today’s market
- Conventional/conforming: 620 minimum credit score
- FHA loans: 580 minimum score (3.5% down); 500 score (10% down)
- VA loans: No minimum score per guidelines, but lenders set minimums around 620
- USDA loans: 640 minimum, although some lenders will approve lower scores
Keep in mind that if you have banged-up credit, an FHA, VA, or USDA loan might suit you best. Conventional loans come with high rates for applicants with credit scores below 680.
Start early if you have bad credit
There is no “unforgivable sin” when it comes to credit history.
All 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 addressing them. Sometimes, you can raise your score within days with a rapid rescore.
Other times, you have to make timely payments for 6-12 months before your credit score starts rising again.
It’s best to know your credit situation before you become serious about home buying. That way, when you’re ready, so is your credit.
How do I check my eligibility for a home loan?
The first step to buying a home is to get pre-approved via an application with a lender. Even if you can’t be qualified now, the lender can tell you what you need to do to improve your credit and be on your way to homeownership.Check your eligibility to buy. Start here. (Mar 24th, 2019)
Check out our first article in this series: “What’s the first step to buying a home?”