Help Getting a Mortgage With a Low Score
Mortgage lenders often recommend a minimum credit score of 680 when applying for a home loan. High FICO credit scores increase the chances of getting a low interest rate on home loans. But if you have a score that's lower than the recommended range, you can still get a home loan. Learn your options, and educate yourself on what it takes to get a mortgage with a low score.
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Down Payments
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Purchasing a home and putting down a sizable down payment can help compensate for a low credit score. Start saving your cash and plan to spend between 5 and 20 percent for a down payment. Lenders differ in their requirements; so the more cash you have for a down payment, the better. Sell a current residence and use the proceeds from the sale as a down payment, or consider withdrawing funds from a retirement account.
Joint Mortgage
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Applying for a home loan with a spouse or another person with a good credit history can help you get a home with a low credit score. Mortgage lenders factor in both FICO credit scores, and typically take the medium of both scores when approving a home loan. For example, if you have a credit score of 610, and your spouse has a credit score of 759, the median score is 684, which exceeds the minimum credit score requirement for most home loan lenders.
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Foreclosures and Bankruptcy
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Allowing adequate time to pass after a home foreclosure or bankruptcy improves your chances of getting a mortgage loan. Even if you're unable to acquire a high score after either incident, improving your credit habits and waiting a few years to apply for a mortgage may convince a lender to give you a chance and approve your application. Wait three years after a home foreclosure, and two years after a bankruptcy.
Government Mortgage Programs
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Government mortgage loan programs are your best options with a low credit score. For example, FHA mortgage loans insured by the Federal Housing Administration have a minimum credit score requirements of 620, whereas conventional mortgage lenders generally require a minimum score of 680. In some incidents, FHA home loan lenders will approve borrowers with no credit score. Another option is a VA home loan available to veterans and active military. Eligible borrowers can receive a mortgage loan with a low credit score and zero down. Mortgage brokers can provide additional, specific information on government programs available to people with less than perfect credit scores.
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References
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