I Have a Lower Credit Score. Is My Mortgage Application Doomed?

Most people can't afford to buy a home outright -- especially not today given how elevated home prices are. If you're in the market for a home, there's a good chance you'll be seeking out a mortgage loan to finance that purchase. And if your credit score is high, there's a good chance you'll be approved provided you meet your lender's income requirements.

But what if your credit score isn't so great? Unfortunately, a lower credit score could make it difficult to qualify for a mortgage. But that doesn't mean you're doomed automatically. You may be able to borrow for a home even if your credit score could use work. Here are a couple of steps you can take if you're eager to get a mortgage with poor credit.

1. Look outside a conventional mortgage

The minimum credit score for a conventional mortgage is 620. But certain loan programs allow you to borrow for a home with a lower score. 

With an FHA loan, for example, you may be able to get approved with a score as low as 500. What's more, VA lenders are sometimes flexible with credit score requirements, so if you meet the criteria for one of these loans, that may be an option, too.

Of course, if your credit score is close to 620 but not quite there, you could try waiting a few months to apply for a mortgage and boosting that number. Paying bills on time could help your score improve a lot. It also pays to review your credit report for errors. Correcting a mistake (for example, an incorrectly reported delinquency) could result in a higher score in fairly short order.

2. Make a larger down payment

Although 620 is considered the lowest acceptable credit score for a conventional home loan, mortgage lenders can ultimately set their own standards. As such, you may come across a lender that wants a credit score of 640 for the loan size you're looking to take out. 

In a situation like that, you might manage to get approved for a mortgage by making a larger down payment. The more money you put down on your home, the less risk your lender takes on. 

A conversation might help as well

The reason mortgage lenders insist on the credit scores they do is because they want to protect themselves and increase their likelihood of getting repaid. As such, don't be shocked if your home loan request is denied due to your credit being in bad shape. 

Think about it this way. If you have an unreliable friend -- they're always running late and they're constantly forgetting about obligations -- you're probably less likely to trust them with an important matter. Similarly, it's hard for mortgage lenders to trust borrowers whose credit is poor.

However, if your poor credit stemmed from a specific situation, it doesn't hurt to let the lenders you're applying with know. Maybe you were out of work for a year to recover from an injury or illness, and that's why your credit took a beating. Or maybe you had to cut your hours temporarily to care for an ailing parent, but you've since gone back to full-time work and are in a much better position to pay your bills on time.

In some cases, a mortgage lender might solely look at the number it sees and deny your application if your credit score is too low. But it never hurts to tell your personal story and see if it helps.