Can You Get a Mortgage with Bad Credit?

Real Estate News Article

< Back

Can You Get a Mortgage with Bad Credit?

Written By: Ashley Sutphin
Monday, October 26, 2020

The real estate market remains hot right now, despite economic headwinds. Many people want to jump in and buy a home or upgrade their current home to a new one for good reason. Interest rates are incredibly low, so now could still be a buying opportunity, despite limited inventory and high prices in some locations.

If your credit isnt perfect, you may wonder if anyone will approve you for a mortgage. The short answer is maybe.

You arent alone if you dont have great credit. Around 15 of Americans have a credit score from 500 to 599, which is considered poor. Around 10 of people have credit in the range of 600 to 649, which is considered fair.

When youre applying for a mortgage, youre most likely to be approved with a score of at least 650, although even anywhere in the 600s can make it challenging. If your score is below 500, youre almost certainly not going to be approved for a mortgage, and beyond that, the following are key things to know.

Conventional Mortgages

Conventional mortgages tend to have the strictest requirements as far as your credit score. Freddie Mac and Fannie Mae are two companies offering conventional mortgages. Freddie Macs minimum credit score requirement is 660, with a down payment of 3. Fannie Maes minimum score for a 3 down payment is 620. If you make a down payment of at least 25, you may be eligible for a Freddie Mac conventional mortgage with a credit score as low as 620.

The majority of lenders follow similar requirements, because usually after your loan is closed, the lender will sell it to Freddie Mac or Fannie Mae.

You should be aware that in the eyes of your lender, theres a difference between having a low score because you dont have much credit history and having a low score because of bad credit history. Youre likely to be viewed more favorably with limited credit than with bad credit.

If youre close to the lending cut-off, you should be able to show that you have a debt-to-income ratio of no more than 36. You will probably also need to show that you have at least two months of cash reserves on hand.

What About an FHA Loan?

An FHA loan may be an option for someone with a very low credit score. You can be approved for these loans with a score as low as 500, but youll have to plan to put at least 10 down.

If you have a higher score, you may be able to put as little as 3.5 down.

Aside from VA loans, FHA loans have the least stringent approval guidelines.

As such, FHA loans are often used by people after a foreclosure or bankruptcy.

FHA lenders dont have to follow the above credit score requirements. They can require that your credit score is higher for approval. Many FHA borrowers have a score somewhere between 650 and 699.

VA Loans

For a VA loan, there is no minimum credit score, but you can only get this type of home loan if youre an eligible service member in the military, a veteran, or the surviving spouse of a veteran. While theres no a set minimum score, individual lenders can create their own guidelines.

Should You Focus on Improving Your Score?

If you have less-than-perfect credit right now, you might want to focus on building your score. It can take several months, but its very unlikely interest rates will go up anytime soon based on what the Fed has said so far. The Fed says they expect rates will stay around zero through 2021 and maybe 2022, although theres no guarantee.

If you can make even modest improvements in your credit score, not only are you likely to be approved, but you may also get better terms. Focus on paying down your high-balance credit cards, cleaning up any errors, and in the meantime, also try to save for a down payment. If you have at least 10 for a down payment, a lender will see you as less risky.





Copyright© 2020 Realty Times®. All Rights Reserved

Updated: Monday, October 26, 2020

7 Scary Things to Avoid If You...
It may sound surprising, but doing Halloween dcor right may actually help you sell your home...

Why Fall Is the Best Time for ...
Spring is often thought of as the best time for planting, but do you know that plating in fa...

The Differences Between Financ...
Financing for new construction as well as financing an existing home both involve getting a ...

Copyright ©2020Realty Times®. All Rights Reserved

Housing Rebound: Factors to Consider
In Miami we have had an incredible year of growth with an ever shrinking supply of condos...

Hoteliers Buy Versace Mansion at Auction
Gindi Family and Nakash Family of New York were the winners of the auction for Casa Casuarina...

Stunning Estate for Sale on Allison Island
Allison Island is one of the man made islands comprising Miami Beach. One half of the island...

Avant Garde and Luxurious Penthouse on Fisher Island
Fisher Island is home to some of the highest net worth individuals in Miami. It is a private...

6000 Indian Creek, Condominium Spotlight
6000 Indian Creek is a Sieger Suarez project that was completed in 2007 and consists of...

$35 Million Buys you THIS on Star Island
$35 Million for a home on Star Island is par for the course in Miami Beach real estate....

Development Update
It is looking like a dusty winter season in Miami, with all the construction rapidly underway,...

North Bay Road Charm, 4330 North Bay Road
4330 North Bay Road is a stunning example of Mediterranean architecture in Miami Beach....

Best Home Improvements for Resale Value
It could not be a better time for a homeowner to list their home for sale in Miami. The...

Biscayne Gets a New Development
The Melo Group of developers acquired 601 NE 23rd St last year and have conceived of 23...

520 West Ave Residence 2301
520 West Avenue is home of the Bentley Bay. Bentley Bay is comprised of two modern towers...

Spice 2013, Guide 101
Miami Spice is a program whereby most of the restaurants in the city encourage people to...

Hollywood has a New Hotel
Margaritaville Hollywood is coming to Hollywood Beach and is likely to completely alter...

Sustainable Waterfront Home on Normandy Isle, 1.85 Million
Rarely on the market do we find completely sustainable, off the grid, homes in Miami Beach....

Housing Inventory on the Rise at the Close of Summer
The Wallstreet Journal released numbers via Realtor.com regarding the inventory of available...

Warm Spanish Style Home Listed on the Sunset Islands
1844 W. 23rd Street is listed on the Miami Beach luxury real estate marketplace for $11...

Former Gansevoort Getting Complete Eco-Renovation
Last year the Perry Hotel, formerly the Gansevoort, was purchased for $230 million. The...

Affordable Luxury Waterfront on Hibiscus Island
A home that is considered affordable in Miami terms for waterfront is generally between...

Bart Reines New Masterpiece Released on the Market
Bart Reines is one of the worlds most impressive modern architects living, and he has just...

New Listing on La Gorce Island
98 La Gorce Court has just been listed for sale. This over 7800 square foot home with 8...