Many people who are interested in buying a home find that they simply cannot qualify for a mortgage. Despite having decent income, applicants may have too much debt or their credit score may be too low. In fact, only about 18% of American consumers have credit scores in the 500 to 599 range using a point scale of 850, which is considered poor to fair credit. Another 10% of American consumers are in the 600 to 649 range, which is considered fair credit. While you may think that your situation is hopeless financially, there are several options available to get the home of your dreams. In this guide, we will explore six different possibilities for getting a mortgage on bad credit.
What Is The Minimum Credit Score Needed To Qualify For A Mortgage
The minimum credit score needed to get a mortgage will depend on what type of mortgage you’re applying for, and what kind of lender you’re working with. Some lenders are more lenient than others, so it’s important to do your research on rates before making any decisions.
Conventional Mortgage Are For Borrowers With Good Or Excellent Credit
Conventional mortgages are for those with the best credit score. You might think they’re impossible to get, but they’re actually much more lenient than you might expect.
Freddie Mac and Fannie Mae are two large companies that make conventional loans more widely available. As for credit score requirements, Freddie Mac’s minimum is a 660, and Fannie has a 620 minimum. One thing to know, though, is that Freddie will allow people with a 620 credit score to use a down payment of 25%.
In order to help their customers get loans, most lenders follow these rules. They will usually sell the loan to one of these companies after it closes.
FHA Loans For Consumers With Lower Credit Scores
FHA loans are for people who can’t afford a large down payment. FHA loans are insured by the Federal Housing Administration and are available to borrowers with lower credit scores and can even be used for investment properties.
If your credit score is at least 580, you may be able to get an FHA loan with a pretty low down payment of 3.5%. These loans have looser credit score requirements than other types of mortgage loans, and are generally quicker to offer borrowers a second chance after a bankruptcy or foreclosure. While if your credit score is lower than 580, the down payment requirement will be higher, but it’s still very possible to get an FHA loan.
VA Loans Are For Veterans
Veterans Affairs loans are a type of home loan offered to members of the military. The loan is offered through the Department of Veterans Affairs and is not available to civilians. The Department of Veterans Affairs offers numerous benefits to veterans and servicemen and women, including home loans.
For Veterans, VA loans are considered non-owner occupied and therefore do not develop their equity through payment. Instead, an investor could use a VA loan to purchase a home and begin repaying it without adding any equity. As far as monthly repayment goes, the Department of Veterans Affairs requires an 80% debt-to-income (DTI), which means that the borrower must be able to afford monthly expenses to make a successful payment.
Like FHA loans, VA loans are more forgiving of negative credit events. VA loans also don’t have a minimum score requirement, which makes this a great fit for service members, veterans and surviving spouses.
USDA Loans Are For Rural Homeowners Who Don’t Have A Lot Of Money
USDA loans are for rural homeowners who don’t have a lot of money. If you’re looking to buy a home in a rural area, then you may want to consider getting a USDA loan. USDA loans come with an interest rate that’s a half a percentage point lower than FHA loans.
Section 502 Guaranteed USDA Mortgages don’t have a minimum credit score requirement. USDA mortgages are available to borrowers who want to buy a home in an area with less than 35,000 people.
Down Payment Assistance Grants Can Help You Get Into A Home Even If You Don’t Have The Cash Up Front
Down payment assistance grants make it easier for you to get into a home even when you don’t have the huge amount of cash up front for a down payment. These grants are usually provided by the government and can help you purchase a home with a low down payment. Examples of these types of programs include USDA “Sardonic Vegetables” conservation programs, the Homebuyer Assistance Program for Children (HAPC), and the Homebuyer Credit Improvement Programs (HICOId).
Federal mortgage relief programs also vary in terms of who can qualify for them. In general, only people with credit scores that are in the middle to upper section 600 range can apply for USDA homebuyer assistance. Cases involving Military Reserve or National Guard members, people who have spouses who are veterans, and real estate investors with an income under $157,000 may also get assistance. There are special limits on how much you can apply for, however, so be sure to talk to your lender about the details.
The HomeReady Mortgage Will Help Some Borrowers With Lower Credit Scores Qualify For An FHA Loan
The HomeReady mortgage from Fannie Mae will help some borrowers with lower credit scores qualify for an FHA loan. The HomeReady mortgage is perfect for people whose credit scores are between 580 and 620. If you’re interested in the HomeReady mortgage, be sure to ask your lender about it during the mortgage application process.
What Have We Learned?
There are plenty of factors that go into qualifying for a mortgage, but not everyone is eligible. Some just don’t have the mitigating factors necessary to qualify, such as 10% down payment, and some have too many adverse factors, such as bad credit.
But bad credit doesn’t mean you can’t buy a house! I know, it’s hard to believe, but there are loans out there that could make homeownership possible for you. If you have the income, savings and financial security to afford a home, buying may be the right choice for you. It just may take more effort and time to find a good lender and your interest rate might be a little higher, but hey, at least you get to own your own place!
