Mortgages With Low Credit Score Requirements

Written by Posted On Thursday, 06 August 2020 15:21
Loans With Low Credit Score Requirements Loans With Low Credit Score Requirements

Getting a Mortgage When You Have a Low Credit Score

If you have a low credit score, it could still be possible to buy a home. There are mortgages with low credit score requirements designed to help applicants at the lower end of the FICO range.

If you don't think you have good enough credit to be approved for a loan, you might be surprised. Borrowers with poor credit can still get a mortgage, though lenders are more likely to be more diligent in their approval process.

Let's review the low credit score mortgage options available.

FHA Minimum Credit Scores

Mortgages backed by the Federal Housing Administration, operate a different way of assessing applicants compared to regular loans. Typical mortgages use risk-based pricing that means people with lower credit scores or other financial issues end up either declined or paying much higher rates of interest.

This isn't the case with FHA mortgage loans, so you can expect better interest rates and a higher chance of being approved. The minimum credit score is 500, but you will generally find that scores above 580 or 620 will be needed by most lenders.

Generally speaking, you will need a credit score of 500 to 579 if you put ten percent down and 580 or higher if you only have 3.5 percent to work with. There are many benefits to an FHA loan, which is one of the most popular loan products among first-time home buyers.

FHA mortgages are one of the best loans with low credit score requirements.

VA Credit Score Requirements

If you have served in the military, the VA loans are desirable. They don't need you to find the money to cover a down payment or have mortgage insurance to pay.

While there isn't a minimum credit score required, most lenders will need to see scores between 580 and 620. Like the FHA loans, the VA doesn't use the same evaluation methods as traditional mortgages. As a consequence, you should find lower interest rates on your mortgage payments.

Keep in mind that not everyone can get a VA mortgage. In order to qualify, you need to have served or be serving in the military. If you happen to fall into this category, thank you for your service! Frankly, you deserve to get a loan with a low credit score requirement.

USDA Credit Score Rules

Lenders operating the USDA backed program will want to see scores of 640 normally, you may find some that will approve scores of 580, however. If you do have a lower score, you can expect to be scrutinized more thoroughly than if your score was higher. Additionally, you will need a debt to income ratio of 41% or less to qualify.

The USDA program also offers nothing down when getting a mortgage, and could be a great choice if you live in a rural area. The keyword for qualifying for this type of loan is "rural area." To get a USDA loan, the population of where you'll be purchasing needs to be under thirty-five thousand people.

Regular Mortgage Requirements

You can also apply for a low credit score loan with lenders offering conventional loans. You can expect to have to pay more interest in non-government backed loans. A minimum credit score of 620 will normally be needed to be approved.

Fannie and Freddie administer the majority of regular mortgage loans. You will be charged a Loan-Level Price Adjustment or LLPA fee based on your credit score and the loan to value amount. You will be charged less through this fee system if you have a larger down payment and higher credit score.

With a credit score of around 640 and a down payment of 10%, the LLPA fee will be close to 2.75%. If you have saved 20% and have a credit score of 700, the LLPA will be nearer 1.25%.

This fee makes FHA and other government options look far more attractive, however. Buying a home with low income is challenging but certainly not out of the realm of possibility, especially given a low-interest-rate environment.

HomeReady and Home Possible Minimums

These programs from Fannie and Freddie, are available to low-income borrowers. They do require a score of at least 620 but let you have a down payment of only 3%.

Home Possible from Freddie Mac is designed for first-time buyers, though HomeReady doesn't have this restriction. These products benefit from lower mortgage insurance costs and could be a good low credit score loan if you aren't eligible for the government-backed programs.

These have become two of the more popular mortgages with low credit score restrictions.

Non-Qualified Restrictions

Qualified mortgage rules were created in 2014 by the federal government to restrict the use of high-risk loan products. It was intended to make loans less of a risk and so avoid previous problems with subprime.

If a lender doesn't sell their loans to investors, they aren't required to follow the qualified rules. This means they can create their own rules for who they lend to, and this can benefit lower-income borrowers.

If you go to a non-qualified lender, you might find they approve loans to people with credit scores as low as 500. Though, of course, such a loan won't offer the best interest rates.

If you don't have the best credit score or level of income, you do have options to buy a home. Check if you are eligible for government programs, and see what is offered through conventional loans. The more of these options you look into, the lower the interest rate you will likely have to pay on your mortgage.

Working with a mortgage broker is a smart idea because they can put you in touch with the right lender for your particular financial circumstances. Finding a mortgage with low credit score requirements is far easier when you have a mortgage broker in your corner.

Working on Increasing Your Credit Score

There is a substantial benefit to increasing your credit score both over the short and long term. When buying a home, it will be one of the most significant factors in determining the rate and terms you receive from a lender.

Lots of folks don't have any idea how certain things you do financially can have a dramatic effect on your credit score. If you want to purchase a home, you'll want to do everything in your power to make consistently smart financial decisions.

There are a couple of companies that do a great job of helping consumers get on the right track financially. Two of them worth comparing are Credit Karma and Credit Sesame. You can see a comparison between the two in the insightful article at RISMedia.

Final Thoughts on Getting a Mortgage With a Low Credit Score

Getting a mortgage when you have a low credit score is challenging but certainly not impossible. The mortgage programs mentioned here will be some of your best bets for getting a loan, whether you have lower credit scores or income. The best thing you can do when trying for the goal of homeownership is to work on bettering your finances consistently.

By doing so, you'll put yourself in a better position to achieve the American dream quicker than you thought possible. Enjoy these mortgage tips to help make it a reality.

About the author: The above article about mortgages with low credit score requirements was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-three plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus. His blog, Maximum Real Estate Exposure, is the most visited real estate agent website in the US.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

Rate this item
(1 Vote)
Bill Gassett

One of the top RE/MAX agents in New England over the last decade plus. Providing exceptional real estate services to buyers and sellers in the Metrowest Massachusetts area including the following communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

See my real estate website at Maximum Real Estate Exposure - one of the most visited real estate sites in Massachusetts.

Agent Resource

How to capture your next prospect - click here

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.