Can You Get a Mortgage With a Low Credit Score? YES!

A low credit score doesn’t have to stop you from home ownership.

Here’s what you need to know about low-credit score mortgages:

What Counts as “Low Credit”?

Let’s debunk the home-buying myth that you need to have a perfect credit score to be able to qualify for a mortgage. Lenders look at your entire financial picture. If you have a steady income, a regular payment history, and some cash in hand, offset the low credit score.

Here’s how FICO generally categorizes credit scores:

  • 800+ = Excellent credit score
  • 740-799 = Very good credit score
  • 670-739 = Good credit score
  • 580-669 = Fair credit score
  • Below 580 = Poor credit score

A credit score of 669 or below typically makes you a “subprime” borrower, according to FICO. That means you’re a bigger risk, so loans will cost more, and your options will be limited.

Your primary low-credit-score mortgage option will be FHA , which sometimes give loans with credit scores as low as 580. But the lower your score, the more it will cost you (we spoke about this in my video).

How Does Your Credit Score Affect Interest Rates?

You may pay more in the form of a larger down payment, a higher interest rate, private mortgage insurance, or points, which are fees attached to the loan.

How much more interest might you pay? Let’s say you’re going for a $400,000, 30-year, fixed-rate mortgage. Here’s how your rate could change based on your score. (FYI, the monthly payment estimate includes only interest and your principal, not insurance, taxes, private mortgage insurance, or other expenses.) Rates here may not reflect current conditions.

If your FICO score is…

Your interest rate is…

And your monthly payment will be…

760 – 850



700 – 759



680 – 699



660 – 679



640 – 659



620 – 639



Source: FICO

So… Buy Now Or Work On My Credit?

That’s a good question and one only you can answer. If your rent is way to high, it might be better to own and then refinance when your credit improves. Read More In What to Know About Your Credit Before Buying a Home improve your credit first . A lender can help you decide. Or you can use an online tool to estimate the cost of different scenarios.

How Do I Boost My Credit Score?

If you opt to work on your credit before getting a mortgage, here are a few ways to do it:

  • Look into rapid rescoring. You’ll work through your lender to fix errors and update information with the credit bureaus quickly, sometimes within days or weeks, rather than months. This isn’t credit repair, but a way to accelerate getting updated information through the system and into your report. Discuss with your lender whether this is a worthwhile pursuit for your circumstances.
  • Find a reputable credit counselor to guide you as the industry is fraught with scams. Start with the National Foundation for Credit Counseling and the Financial Counseling Association of America, each of which has local member agencies that adhere to credit counseling standards.
  • Check your credit report for errors.
  • Pay off credit card balances.
  • Pay off other outstanding collections.
  • If you don’t have credit, get a credit card or small loan and establish a good payment history. (No credit is low credit.)

Even if you have a low credit score, a mortgage isn’t out of reach. While it may cost you more to buy now, in the end, it may be less expensive than waiting. And you’ll get the joy of owning a home to call your own.

Posted on 01/09/2019 at 1:39 pm
Jonathan Cabrera | Category: Buying | Tagged , , , , , , , , , , , , , , , , , , , , ,

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