A low credit score doesn't have to stop you from buying a home. Here's how to get a mortgage with bad credit.
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 bad credit.
|Credit Score Range||Classification of Score|
|800 or above||Exceptional|
|740 to 799||Very good|
|670 to 739||Good|
|580 to 669||Fair|
Generally speaking, you need a credit score of 620 or higher to qualify for a conventional mortgage, which is a 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 above, 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.
There are different ways to get a mortgage if your credit is poor, including some for borrowers with credit scores of below 620. Look at our list of the best mortgage lenders for bad credit and check out the following options:
If you're going into your mortgage search with bad credit, it pays to look into the programs above. But it also pays to shop around for different rates and options to see what's best for you. Community banks are a good place to start as they may offer different levels of flexibility than national banks. But also, look at online banks and credit unions -- the more options you explore, the greater your chances of finding a match.
If you think getting a mortgage will be a challenge for you, it could pay to enlist the help of a mortgage broker whose job is to match you with lenders based on your needs and financial circumstances. Additionally, if you're able to find someone with strong credit to cosign your mortgage, you'll have a better shot at getting approved.
Having poor credit could make your home loan more expensive. The best available rates are generally reserved for borrowers with the highest scores, so 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 3.017% on a $200,000, 30-year fixed loan, resulting in a monthly payment of $845. With a credit score of 620, that rate climbs to 4.606% for the same mortgage, and the ensuing monthly payment rises to $1,026.
But rates aside, if your credit is poor, you may want to think about why that is before getting a mortgage. Is it simply a matter of not having a very lengthy credit history? Or is it because you're not in a very strong place financially, and as such, have frequently been late with bills or run up a high tab on your credit cards? If it's the latter, then delaying your mortgage application and working to improve not just your score, but your entire financial picture, could be prudent.
One of the best ways to increase your chances of getting approved for a mortgage is to find out how to rebuild your credit. You can do so by:
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.
Although you usually need a credit score of 620 or above to qualify for a mortgage, some mortgage programs allow you to get a home loan with a lower credit score (or even no credit score at all).
If you're hoping for a conventional mortgage, a credit score below 620 may prevent you from getting approved.
You have several options for getting a mortgage if your credit is poor:
If you are confident you can afford your mortgage payments despite your poor credit, it may not be a bad idea to move forward with a home loan. But if your credit is poor due to financial problems, then you're better off cleaning up your finances and then buying a home.
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