There has been a lot of information that’s swirling around on the internet lately, some of it right, some of it wrong, surrounding credit scores. I’m creating this Credit Myths series as a resource for some of the more commonly asked questions about credit scores.
Can I get a Mortgage with a Low Credit Score?
Yes, it’s possible to get a mortgage with a low credit score, but it may be more challenging and come with certain trade-offs. Most lenders prefer borrowers with higher credit scores because it indicates a lower risk of default. However, there are loan programs specifically designed to help people with less-than-perfect credit become homeowners.
For example, FHA (Federal Housing Administration) loans are a popular option for borrowers with credit scores as low as 500, though a minimum score of 580 is typically required to qualify for the lowest down payment (3.5%). Those with scores between 500 and 579 may still qualify but are usually required to put down at least 10%.
Other programs, like VA loans (for veterans) and USDA loans (for rural homebuyers), also offer more lenient credit requirements, though each lender sets its own standards.
Having a low credit score often means:
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Higher interest rates, which increase the overall cost of the loan.
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Larger down payments in some cases.
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More thorough documentation of your financial situation.
To improve your credit score and your chance of a mortgage approval, consider the following:
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Pay down debts to reduce your credit utilization.
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Use a service to monitor and help raise your credit score.
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Work with a mortgage broker who has experience with low-credit applicants.
While it’s not easy, getting a mortgage with a low credit score is achievable, especially with the right strategy and loan program. It’s also a good idea to work on improving your credit before applying, which can lead to better loan terms and long-term savings.
If your score is lower than you’d like, you’d probably benefit from a service like this one which lets you keep track of your credit and improve it for you.