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How To Get A Home Loan With Bad Credit Score

How To Get A Home Loan With Bad Credit Score

The thought of buying a house is already overwhelming. If you have a bad credit score, you probably think that you have to wait a couple of years while you improve your credit or need a huge down payment. Neither of those is necessarily true. There are some loan options that you may qualify for with your current financial position. 

Most people would have to spend lots of time researching to find them, but you’re reading this article, and we’re going to review a few loan options for people with lower credit scores. The good news is some of the options only require a 580 credit score. Many lenders will issue government-backed FHA loans and VA loans to borrowers with credit scores as low as 580. It may be hard to find, but there are actually lenders who can give home loans to people who have credit scores of 500-579. Your options open if you have 600-620, but your best bet is to have 680 or higher. With that credit score, you are practically open to any home loan.

In this article, you will learn about the available options for home loans for bad credit borrowers.

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Home Loans

FHA Mortgage

One good option to consider is the FHA loan type. Backed by the Federal Housing Administration, the FHA loans offer the lowest credit score requirements among other home loan programs. With a credit score requirement starting at 580, you are already eligible to apply. For those with a score of 580 or higher, you can enjoy a 3.5% down payment as well. Those with a 500-579 credit score need not worry because you can still be qualified for FHA loans, but you may need to put at least a 10% down payment.

VA Mortgage

VA loans are popular mortgage loans offered to veterans, service members, some eligible spouses, and those who are military-affiliated. Although it requires a higher credit score than FHA loans, you can still enjoy low-interest rates and zero down payment and insurance payments advantage.

While there is no explicit minimum requirement for VA loans, lenders typically require a 580 – 620 credit score.

USDA Home Loan

USDA loans are famous for not requiring a down payment, but they need a slightly higher score of 640. This lender is backed by the U.S. Department of Agriculture with the hope to increase new home property owners in rural areas. Aside from the minimum required score, you should purchase the property in a rural area to secure the loan.

Conventional Loans

Since any government office does not back conventional loans, they usually charge a higher interest rate for borrowers with low credit scores. While the minimum requirement is 620, those with lower scores can still apply but should expect a higher monthly payment. If you need assistance with your mortgage applications, you can also consider getting the services of mortgage brokers such as Freddie Mac Home Possible and Fannie Mae Home Ready. These agencies are two of the most popular options for conventional loan applications in the United States.

Non-qualified Mortgage or  Non-QM

A loan’s terms are a minimum score of 600 or higher, down payments, and/or mortgage insurance.

To help you apply for your home loans, improve your score. Do this by:

  • Increasing your available credit. Do this by paying down balances or increasing your credit limit.
  • Adding new account/s. If you add new accounts, that means you are also increasing your limit.
  • Paying for deletions. Collections can throw off the bank because it shows that you owe money from someone, and even if you have paid it, they will still be able to search it because the record is in the system. To clean up your report, pay for deletions.
  • Staying away from hard credit inquiries.  Having too many questions is not a good sign for the bank because they can interpret it as a sign of desperation.

 

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Mortgage Rates

As of January 31, 2021, the benchmark 30-year fixed-rate is 2.880%, with an APR of 3.190%. The average 15-year fixed rates 2.350%, with an APR of 2.690%. The 5/1 adjustable-rate mortgage (ARM) rate is 3.000% with an APR of 4.000%.

Hopefully, this can help you search for the home that you want and that fits your needs

 

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