How to Buy a House with a 600 Credit Score: Mortgage Options

Qualify for a home loan with a 600 credit score

If you have steady income and employment and are capable of making mortgage payments, a 600 credit score should not stop you from buying a house.

It all comes down to choosing the right mortgage program based on your credit, your income, and the home you’re buying.

In this article (Skip to...)

• Qualifying with low credit
• 600 credit score home loans
• Options for higher scores
• How 600 scores affect rates
• Improving low scores
• FAQ

Can I buy a house with a 600 credit score?

Yes, you can qualify to buy a house with a 600 credit score. In fact, there are several loan programs specifically tailored to help people with lower credit scores.

But this doesn’t mean everyone with a low score can qualify for a mortgage. You’ll have to meet other standards set by lenders, too.

• Lenders must verify your income and confirm your ability to afford a mortgage payment. If you’re self-employed, you may have to submit bank statements or evidence of steady income
• Typically, you must be employed for at least two consecutive years to qualify for a home loan. (Although there are some exceptions to the two-year job history rule)
• Your credit history must be good, too. This means no late payments or negative information has been reported to the credit bureaus within the past 12 months
• Your existing debt-to-income ratio can't be too high. To qualify for a mortgage, your total debts, including the home loan, typically need to be under 45% of your pre-tax income

Your debt-to-income ratio (DTI) is your monthly debt obligations as a percentage of your gross monthly income.

For example, if you make $3,000 a month before taxes and have $500 worth of monthly debt repayments, your DTI is 17%. Debts that count toward your DTI include things like minimum credit card payments, auto loans, student loans, and so on.

If you meet these other criteria, you should be able to accomplish the dream of homeownership and buy a house with a 600 credit score. You just have to choose the right mortgage loan program.

Mortgage loans with a 600 credit score

Loan options for first-time home buyers and repeat borrowers financing a house with a 600 credit score range include:

FHA Loans

The Federal Housing Administration (FHA) is a government agency that backs this mortgage. FHA loans are designed for low-to-moderate-income borrowers who may have lower than average credit scores.

These loans require a credit score of at least 580 and a down payment of 3.5%. If your credit score is below 580, however, you’re not disqualified. You just need a larger down payment of 10%.

FHA loans also allow higher debt-to-income ratios than conventional loans, making them an excellent choice for borrowers with higher debt levels. But the drawback is that you’re on the hook for mortgage insurance premiums (MIP) until you refinance into another type of mortgage or until the loan balance is paid in full.

VA Loans

VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs and designed to offer long-term financing to eligible American veterans, active-duty service members, and their surviving spouses.

VA home loans don’t have a minimum credit score requirement, so it’s possible to get this type of loan and buy a house with a 600 credit score. However, lenders are allowed to set their own minimums, which typically range between 580 and 660.

Moreover, this type of mortgage does not require a down payment, and it also tends to have competitive mortgage interest rates. In order to qualify, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of minutes. Eligible borrowers will also need to pay a one-time VA funding fee, which is usually rolled into the loan balance.

Non-Qualified Mortgages

Non-qualified mortgages (Non-QM) are home loans that do not meet the Consumer Financial Protection Bureau’s (CFPB) rules for a qualified mortgage. These loans cater to borrowers with unique income-qualifying circumstances, such as self-employed individuals, real estate investors, or those with significant assets.

Non-QM loans may have more flexible income requirements and higher interest rates to offset the added risk. Non-QM loans are typically offered by banks that have the funds to set up and service their own unique mortgage programs. You can look for one on your own or work with a mortgage broker who can recommend loan products that you’re likely to qualify for with a 600 score.

Mortgage loan options for slightly higher credit scores

You don’t need perfect credit to purchase a home. But a higher credit score can make the approval process easier, and it can definitely save you money.

If you have a 600 credit score, bumping your score up to 620 (which is considered a fair credit score) can help you qualify for a conventional loan.

• Conventional home loans might be an option, but you’ll need a minimum credit score of 620. Keep in mind that if you finance a property with a conventional loan with less than a 20% down payment, you’re on the hook for paying private mortgage insurance (PMI). But homeowners can remove PMI with a refinance once they build 20% equity
• The Fannie Mae HomeReady program is available to home buyers with a 620 score. It features a 3% minimum down payment requirement, and you can include income from other household members to qualify, regardless of credit history.
• USDA loans are backed by the U.S. Department of Agriculture, and they’re popular loan options because there is no down payment requirement. However, USDA loans do require that properties be located in an eligible rural area. You’ll need a score of 640 or more
• The Freddie Mac Home Possible loan features a low 3% minimum down payment requirement and a minimum score of 660. But this loan program is only available to first-time home buyers

How a 600 credit score affects your mortgage rate

It’s important to understand that buying a house with a lower credit score means you’ll have higher borrowing costs. Those typically include a higher interest rate and paying for monthly mortgage insurance.

However, the effect a 600 credit score will have on your mortgage rate varies by loan type. Here’s what you should know.

FHA mortgage rates and mortgage insurance

FHA mortgage rates are not directly tied to your credit score. So borrowers with a 600 credit rating can buy a house and often get a low rate using an FHA loan.

However, FHA loans also include a mortgage insurance premium (MIP).

MIP is separate from your interest rate, but it’s paid monthly as a percentage of your loan amount. So it’s effectively like paying a higher interest rate.

Here’s an example of how that might look:

• FHA mortgage rate: 2.50%
• FHA annual mortgage insurance: 0.85%
• Effective interest rate: 3.35% (If you finance the MI)

FHA loans also come with an upfront mortgage insurance fee equal to 1.75% of the loan amount.

This can be paid along with your closing costs. However, most people opt to roll the upfront fee into their loan amount, so they don’t have to pay it out of pocket.

Conventional loan rates with low credit

Unlike an FHA loan, your mortgage rate is directly related to your credit score with a conventional loan.

That’s because conventional loans use “loan-level price adjustments” (LLPAs).

LLPAs are risk-based fees that lenders charge to borrowers with lower credit scores and/or smaller down payments. Instead of being paid upfront, LLPAs are typically paid at higher interest rates.

For example, say 30-year conventional rates are 3.00%.

• A borrower has 620 credit and a 5% down payment
• Their LLPA fee is 3.25% of the loan amount
• That’s equal to $9,750 on a $300,000 loan
• Instead of paying $9,750 out of pocket, most borrowers will cover the fee with a higher rate
• A 3.25% fee would likely raise rates by about 0.5% to 0.75%
• So instead of the 3.0% base rate, your mortgage rate could be as high as 3.75%

These fees are the reason many borrowers with lower credit scores—even those who might qualify for a conventional loan—opt for FHA loans instead.

However, there are benefits to conventional mortgages for those with credit scores of 620 or higher. A big one is the ability to remove mortgage insurance without refinancing.

Thus, a conventional loan might be cheaper in the long run if you plan to stay in the house for many years.

The right choice will vary by person, so it’s important to compare all your loan options before buying.

“Ask your loan officer if they have any ideas around increasing your credit score; they may be able to help you quickly boost your scores to help you get a better rate,” advises Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

How to check your credit

It’s important to check your credit reports before applying for a home loan, preferably 6–12 months before submitting a mortgage application.

You’ll know where you stand credit-wise, and you can take steps to improve your score to get a lower mortgage rate and save thousands.

When checking your credit, make sure the information comes from a service that uses the FICO scoring model.

This is the same scoring model used by mortgage lenders. If you check your VantageScore, which is used by TransUnion, this credit score might be higher than the one a lender sees.

The major credit bureaus that use FICO scores include:

• www.experian.com
• www.equifax.com
• www.myfico.com

How to improve your credit score

A credit score of 720 or higher will typically put you in the “good credit score” category, which gets you access to the lower mortgage interest rates you see advertised.

If you have some time before you plan to buy a home, it’s worth trying to increase your creditworthiness. Even a few-point difference can fetch you lower interest rates, which in turn will save you money on your monthly mortgage payment.

The pace at which you’re able to increase your credit score depends on many factors, such as the cause of a low score and your current credit history.

But if you’re looking for the quickest path to better credit, there are a few steps anyone can take.

Pay bills on time

For example, always pay your bills on time. By doing so, your score will increase little by little each month.

But you need to prioritize your payments. Make your debt payments first, then your utilities. Of course, you should always pay your water and electricity bills, but missing these payments doesn’t affect your credit score like missing a payment on a credit card or auto loan.

The only exception is if you need to use non-traditional credit to qualify (which means you have no credit history). Then, in order to qualify you, your lender will examine your payments, such as utility bills and rent.

Debt payment history makes up 35% of your credit score, and each timely payment results in positive activity reported to the credit bureaus.

Pay down existing debts

You can also pay down debt to increase your credit score. The amount you owe makes up about 30% of your score. Therefore, keeping credit card balances below 30% of your credit limit can have a big impact.

Better yet, pay off your balances in full each month. Also, avoid opening any new credit cards or taking out any loans.

Improving your credit utilization ratio is one of the fastest ways to increase your credit score, possibly raising it within a month.

Flag and remove errors

It’s also important to remove errors from your credit report. Negative items reported in error can lower your credit score, too.

Typically, you can get one free credit report per year using the site annualcreditreport.com. This gives you more leverage to monitor your creditworthiness and fix errors or red marks as soon as they appear.

Keep in mind that legitimate negative items like foreclosures and bankruptcy can remain on your credit history for years.

Consider a rapid rescore

You can also talk to your mortgage lender about a process called rapid rescoring.

If you have proof of a credit report error, your lender can use this service to quickly update your credit report and provide a new credit score within days.

Sometimes, rapid rescoring increases a credit score by 100 points or more. But the amount it will help you depends on the severity of the errors on your credit report.

FAQ: Buying a house with a 600 credit score

Do you qualify for a home purchase with a credit score of 600?

To recap, a 600 credit score is high enough to qualify for a few different types of mortgages. But credit isn’t the only thing that matters.

Before approving you to buy a house, a lender also needs to verify your employment status, income, and debt-to-income ratio to ensure you can make monthly payments on your mortgage.

So the best way to find out whether you can buy a house with a 600 score is to check in with a few lenders.

Applying with a lender is usually free, and it will give you a concrete idea of whether you qualify for a home purchase.