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Is your credit score 590? THIS is the perfect home loan for you!

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Traditional loans or conventional loans usually require you to have a FICO Score in the Good range. When we say Good, this means a credit score that is at least 670. By definition, credit scores below this number can already be considered as bad credit.

If you have a credit score of 590, it will be impossible for you to get qualified for a mortgage from private lenders. However, government-backed loans can save you back, especially if there is no way for you to delay borrowing for a new home.

Perfect may be a loaded word. And unlike t-shirts, there are no accessible sizes for mortgages. But in your situation, an FHA loan may be the best option, so you don’t have to worry about where you’re buying a house or if your profession will pose a problem.

Let’s get into this in detail today.

590 Credit Score Home Loan

The FHA Loan

The Federal Housing Administration loan or FHA loan is the go-to mortgage for first-time homebuyers. However, you don’t have to be a first-time homebuyer to apply for one. In truth, though, it earned this reputation because it is meant to provide opportunities for everyone who wants to buy a house, regardless of credit score.

It is relatively effortless to qualify for a loan because of FHA mortgages. The minimum credit score required is just a 500, which is the starting credit score of 99% of American consumers. In the worst-case scenario, you will only be ineligible for FHA loans if you’ve recently been a delinquent borrower or you’ve been through bankruptcy in the last seven years. These derogatory lines in your credit report usually stay on for a very long time.

Down Payment

Borrowers with credit scores from 500 to 579 will need to make a down payment of at least 10% based on the home’s purchase price.

Since you have a 590 credit score, you are allowed to make a low down payment of just 3.5 percent. This feature becomes available once you get a credit score of at least 580. Bear in mind, though, that the lower the down payment you make, the more costly your loan.

If it will be in any way possible for you to make a more considerable down payment amount, do your best to pay over the required 3.5 percent.

On the other hand, if 3.5% will still not be covered by your savings, the FHA allows borrowers to get this amount from another loan, as long as it is collateralized. Unsecured loans are out of the question.

If you have family members interested in helping you out, there are two ways to do this. If they are willing to gift you some of the funds needed to make the down payment, this is okay, as long as they signify in writing that they have no plans of asking you to pay them back in the future. Another way is by lending you the money. It’ll be by your arrangement with them, so you can work out how repayment will be made or when.

There are also local down payment assistance programs that you can approach if any of those options are not available to you. Note that there are fewer of these programs now than before, so it will still be better to get this loan when you have tucked away enough savings.

Mortgage Insurance

Because home loans let you borrow a large amount of money, lenders must find a way of securing their investment. We’re talking about mortgage insurance. And, unlike traditional loans, borrowers may have the losing end of the bargain, especially if you make a down payment of less than 10 percent.

For FHA loans, there are two types of mortgage insurance. First, there’s an upfront charge that you have to pay for, which is 1.75% of your loan, and this is rolled over into your loan amount. Secondly, there is a monthly 0.85% mortgage insurance premium. And while these numbers don’t seem that high, what makes them discourage people from getting FHA loans is they stay on your loan for a very long time.

If you make a down payment below 10 percent, there is no way of stopping these insurance charges. But, on the other hand, if you can afford at least a 10% down payment, these fees start coming after 11 years. Still, a decade is a very long time. That’s why FHA loans are usually just a stepping stone to getting a different kind of mortgage later on through a refinance.

Other Requirements

The FHA loan is government-backed, and when you’re getting a loan insured by the federal government, it’s always important to keep in mind that you can only have one at a time. This is because you will need to use the home as your primary residence for at least one year. In addition, you can only have one primary address, so you’ll have to use the house within this period personally.

However, you are allowed to generate rental income that can help you pay for the monthly amortization. There are nuances to this, and it will depend on the number of units included in the home. You cannot rent the whole property entirely because you’ll have to live in an area of it for at least a full year.

Next, you’ll have to consider how stable your employment is. To qualify for an FHA loan, you’ll have to prove that you’ve been receiving at least two years of steady income from your profession. This will show that you have a higher chance of staying in your position for the following years as you pay for your mortgage.

Other Loans You Should Know

There are other government-backed loans you’ll want to be aware of since you have a credit score of 590. These are USDA loans and VA loans.

However, unlike FHA loans, they have restrictions that may quickly disqualify you from availing them.

USDA Loan

The U.S. Department of Agriculture has set up a loan program to encourage more people to buy homes in rural areas. This is the USDA loan.

There is no minimum credit score and no minimum down payment to get this mortgage. As long as the location of your house is considered by the USDA as a rural area, you are good to go. However, if you have a credit score below 640, you’ll have to prepare a lot more paperwork because of manual underwriting. Below 640, your credit score is either Poor or Fair, under the FICO scoring range, and the lender will want to know the story. Maybe you’ve just been behind on some payments, and you’ll have to prove that these were for reasons that were beyond your control.

VA Loan

For our service members and veterans, there is also a job benefit in the form of a VA loan.

Like the USDA, the Department of Veterans Affairs does not specify minimum credit or down payment requirements for the VA loan. Often, though, lenders will prefer a credit score of 580 or higher and set their own minimum credit score requirements.

Mortgage lenders, in particular, like approving applications for VA loans because, in the event of a foreclosure, they are guaranteed 25% by the Department of Veterans Affairs. This is why mortgage rates tend to be better, and you won’t have to pay for mortgage insurance on a VA loan.

Improving Your Credit Score

With a 590 credit score, you are only 30 points away from qualifying for a traditional mortgage. And if you are not looking to buy a house in that much of a hurry, it will be worth your while to postpone this transaction to try and raise your credit score this much.

At 590, you’ll most likely get an FHA loan, and to compare, there is a significant way that conventional loans can help you save on your home purchase.

As we’ve mentioned, for FHA loans, you have to pay for insurance, which doesn’t protect you and, in fact, protects the lender. The same goes for conventional loans, but instead of needing to stay on your monthly statement for years and years, you have the chance to avoid insurance if you can pay at least a 20% down payment on your home loan.

For conventional loans, the minimum down payment is just 3 percent. But even if you only pay this much, once you gain at least 22% home equity, they already remove insurance from your charges. So, again, this is something that you can achieve in less than eleven years.

So what should you do if you want to increase your credit score? Let us count the ways.

Credit Piggybacking

This will probably stop working to boost your credit eventually, considering how easy and likely it will help your score. But, in time, banking institutions will ultimately catch on. For now, though, this method is legitimate, so you should grab the chance while you still can.

Essentially, it would help if you found someone who trusts you enough to put you down as an authorized user on their credit card. You won’t even need to have access to an actual card or use their account for this to work. We recommend just keeping everything on paper to preserve your relationship.

If this person has a long history of exceptional credit, some of that positive information will trickle into your credit report. In a few months, you might be able to raise your credit by at least a hundred points, depending on how high this person’s credit score is.

Correcting Errors

Sometimes, you can get a low credit score due to a simple error found in your credit report.

It almost sounds nightmarish, but it is a pretty common occurrence. However, the good news is, you are well within your rights to dispute such mistakes, especially if this information was responsible for pulling down your score significantly. And why even stop here? Make sure you check every line on your credit report so that only unadulterated facts can be found on it.

Remember, the burden of proof lies on the institution that included this negative detail in your report.

Credit Limit Increase

This last tip almost sounds counter-intuitive, but it is based on how they compute your FICO Score.

Most likely, you’ll already have a credit card or two. If you don’t already have one, consider this your signal to apply for your first. Now, every credit card has its credit limit. In truth, we don’t recommend getting another credit card, even though this will give you an additional credit line. It will just cancel out your extra points due to the hard pull that the bank will do for your application. So instead, we recommend that you go for a credit limit increase on a card you already have. For this to happen, you usually need to submit your updated employment information to show that you are now more capable of paying for a higher credit amount.

If you have two or more cards, what you can do is identify the card with the highest credit limit and submit the statement for it to your other card issuers as you request for a limit increase. You can argue that you already have a higher limit on your other card, and if they want to retain your existing relationship, they might as well follow suit and increase your credit line.

 

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And there you have it. We hope that we can let you in on a secret you weren’t aware of before.

The mortgage application can be a long and grueling process. Just remember never to give up and keep chasing after your dream! Good luck!

 

Photos from Pixabay

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