If you've got a low credit score, but are determined to buy a new home (or looking to refinance your existing mortgage), you may be wondering.
A high score sends all the right signals, while a low credit score, sometimes referred to as "bad credit," can keep you from getting approved. A bad credit score generally falls below 630.
While getting a home loan with scores in the low 600s is possible, the CFPB warns that these loans often come with very high interest rates and could put borrowers at risk of default. Because applying for a mortgage with bad credit could mean you only qualify for a loan that may be difficult to pay back, it might be smart to wait to buy a home until your credit scores improve.
For those interested in applying for an FHA loan, applicants are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent. If your credit score is below 580, however, you aren’t necessarily excluded from FHA loan eligibility.
Applicants who have a minimum decision credit score of less than 500 are not eligible for FHA mortgages. Those with credit scores of 500 or better are eligible for 100% FHA loan financing with no down payment required when using the FHA 203(h), Mortgage Insurance for Disaster Victims.
You may still be able to get a mortgage with a low credit score. Of course it will depend on a few factors, so your best bet to see if you’ll qualify for a loan is to talk to a lender . Many lenders will have a conversation with you about your eligibility with no obligation to apply for a loan.
People with low credit scores can own a home without years of trying to establish better credit. That type of activity could stimulate the economy. Subprime loans can actually help borrowers fix their credit scores.
So if you’re getting a home loan with a spouse or partner with a lower credit score then you be prepared to have a higher rate. In some cases, a very low score may cause the mortgage to get rejected altogether. Talk to your spouse or partner before deciding to get a new home loan or refinancing.
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