May 31st, 2021 12:37 PM by Jackie A. Graves
The higher your credit score, the more likely you are to get approved for a home loan. But that doesn't mean qualifying with a lower score is impossible. Here, we'll show you how to get a mortgage with low credit.
Is it possible to get a mortgage with bad or poor credit?
Before we talk about how to get a mortgage with poor credit, let's review what that actually means. Credit scores range from a low of 300 to a perfect score of 850. Within that range, here's how FICO (the most popular scoring model) classifies different scores:
CREDIT SCORE RANGE
CLASSIFICATION OF SCORE
800 or above
740 to 799
670 to 739
580 to 669
Data source: myFICO.
Can I get approved for a mortgage loan with a bad credit score?
If you're wondering, "What credit score do I need to qualify for a mortgage?" you generally need a score of 620 or higher for a conventional mortgage. This is a type of mortgage not backed by a government agency. If your score is lower, your options may be limited -- but they still exist. Keep in mind that 620 is smack in the middle of the "fair" range. So you may be thinking: "Why wouldn't I manage to snag a conventional mortgage with a credit score of 600 or 590?"
The reason is that a home loan is a major undertaking and usually not a small amount of money. As such, lenders may be more careful about extending credit to you in mortgage form.
What types of home loans are available for those with bad credit?
There are different ways to buy a home if your credit is low, including some for borrowers with credit scores below 620. Look at our list of the best mortgage lenders for bad credit and check out the following options:
How to get a mortgage with bad credit
If you're going into your mortgage search with low credit, it pays to approach the process strategically:
Should you buy a home with poor credit?
Having poor credit could make your home loan more expensive. The best available rates are generally for borrowers with the highest scores. If your credit needs work and you move forward with your mortgage application anyway, you could get stuck with a higher interest rate than necessary for the length of your loan.
Case in point: If you have a credit score of 760 or above, as of this writing, you might qualify for an APR of 2.644% on a 30-year fixed $200,000 mortgage, according to myFICO. That would leave you with a monthly payment of $805, and you'll pay a total of $89,907 in interest over the life of your loan. But if your credit score is a 620, your rate will jump to 4.233%. That, in turn, will give you a monthly payment of $982 and leave you paying a total of $153,481 in interest over the life of your loan.
But rates aside, if your credit is low, you may want to think about why that is before getting a mortgage. Is it simply a matter of not having a lengthy credit history? Or is it because you're not in a strong place financially and have frequently been late with bills or run up a high tab on your credit cards? If it's the latter, then it might be a good idea to delay your mortgage application and work to improve not just your score, but also your entire financial picture.
What can I do to increase my chances of getting approved for a mortgage?
One of the best ways to increase your chances of getting approved for a mortgage is to find out how to rebuild your credit. Here's how:
But remember, it's not just your credit score that's evaluated when you apply for a mortgage. You'll also want to work on:
Poor credit doesn't have to prevent you from buying a home, and there are plenty of loan options out there for borrowers whose scores need improving. But before you rush to take out a mortgage, it could pay to invest a little time and get your credit score to a healthier place. Doing so could open even more borrowing options -- and more affordable ones at that.
Ready for mortgage pre-approval?
Getting pre-approved for a mortgage loan is an important step in the home buying process. Our experts recommend mortgage pre-approval before you begin looking at houses or deciding on a real estate agent.
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