How To Get A Mortgage When You Have Less-Than-Perfect Credit


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Not everyone has perfect credit. While having a lower credit score does make it a little trickier to buy a home, there are options available to help you become a homeowner. To that end, I’ve listed some of them below. Keep reading to learn what you can do to buy a home even if your credit score is less-than-perfect.

Investigate government-backed loan programs

While conventional loan programs typically have a minimum score of 620, government-backed loan programs – such as FHA, VA, and USDA – tend to have looser qualifying requirements. In each case, the government agency has agreed to insure the loan if you default, which makes approving you for a loan much less risky for the lender.

The credit minimums for these programs are as follows:

  • FHA: 500 – 579 with a 10% down payment or 580+ with a 3.5% down payment
  • VA: VA loans have no official credit minimum. Instead, each application is reviewed on a case-by-case basis. Though, individual lenders may have internal qualifying standards regarding credit.
  • USDA: USDA loans also have no official minimum. While a score of 64o is required for a streamlined approval process, lower scores are accepted if they were due to extenuating circumstances.

Keep in mind that if you’re going after one of these loan programs, you’ll want to work with a lender who has experience with them. Be sure to ask them about their experience levels as you interview various lenders.

Save toward a larger down payment

Remember, credit is only one of the factors that will help you qualify for a mortgage. Your income, work history, and amount of reserves – or the cash you have for your down payment and closing costs – will also play a role. With that in mind, if you have a lower credit score, one of the best things you can do is to save up money.

A large down payment will work in your favor by decreasing your risk level in the eyes of the lender. For one, it will lower the overall amount of your mortgage and it will also increase your stake in the property.

Ask about portfolio loan options

If you don’t qualify for traditional lending options, your lender may be willing to offer you a portfolio loan. With a portfolio loan, rather than selling your debt to third-party agencies like Fannie Mae or Freddie Mac, the lender keeps it in-house as part of their portfolio.

Since the lender is keeping the debt, they can set their own qualifying standards for the loan. However, along with that, know that they can also set their own interest rates and fees.

Work with a lender to improve your score

If all else fails, you can always take the time to improve your score before trying to buy. In general, making your payments on time each month and paying as far above the minimum payment as possible are great steps to take when trying to raise your credit score.

It may also be helpful, however, to talk to a lender about the specifics of your financial situation. He or she can talk to you about what individual steps you can take to boost your score so that you can become a homeowner before you know it.


Written by Loknath Das