Many borrowers are unaware of the fact that there is no such thing as a specific credit score requirement by a lender to buy a house.
A conventional mortgage lender is independent when it comes to deciding the required credit score. Government-backed loans give a lot of freedom, and there is usually a lower credit score requirement, but credit score is an essential factor for loan approval.
If your credit score is lower than 500, it could be hard for you to get a home loan approval, and thus you should focus on increasing your credit score.
However, if you are applying for first time home buyer programs with low credit scores in Houston, tx, you must read the full article to know more about bad credit score loans.
Is It Possible to Buy A House with A Bad Credit Score?
According to the credit bureaus, anything less than 670 FICO is considered “subprime” or “bad”. Moreover, a fair score is 580 to 699, while a poor score is 300 to 579. The thing about having bad credit is that it’s not about someone else’s bad credit score.
When it comes to bad credit scores, two situations are never identical, apart from your actual scores, lenders will also look at the factors below –
- How much money is available for the down payment.
- How much income you have.
- If your overall amount of debt is low.
- If you have any debt in the collection
Cash is your best friend if you have a low credit score. The more cash you use for the down payment, the better outcome you get.Because a low credit score will only help you qualify for a certain amount of home loan.
The lender you get is also a big factor because credit score requirements vary from lender to lender. When you avail of a bad mortgage loan, you should be prepared to pay higher monthly payments with higher interest rates.
However, if you buy a home while having a bad credit score, you can try to repair your credit score and refinance your loan for better mortgage terms.
What Type of Home Loans You Can Get With Bad Credit?
There are two types of mortgage loans including conventional loans and government-backed loans. The main difference is that the government-backed loans are insured by the federal government while conventional loans aren’t.
Following are some of the loans available and their requirements –
FHA Loans
These loans are backed by the Federal Housing Administration and the minimum credit score requirement is 580. If you make a 10% down payment, you can also get loan approval for 500 to 579 scores.
Conventional Loans
Usually, a credit score of 620 or more is required to qualify for conventional loans. But, if you are putting in a higher down payment, you can get loan approval easily.
VA Loans
This loan is backed by the Department of Veterans Affairs and if you are an active duty member, you will easily qualify for these loans. You can buy a house with zero down payment with such loans, and around 620 credit scores are required.
USDA Loans
Usually, lenders require a credit score of around 640 along with other income documents to get loan approval. This loan is backed by the U.S. Department of Agriculture.
It’s tempting to buy a house today, but now that you know what credit score requirements for different types of loans, it’s better to wait and work on improving your credit scores.