November 18, 2020
Lots of potential home owners want to know if it is possible to get a mortgage with a low credit score. The answer to this kind of question may surprise you, but much depends on both FHA loan rules AND participating lender standards.
What do you need to know to get started looking for a home loan with a low credit score?
Start Working On Your Credit Today
What some borrowers don’t understand is that there are things you can do in the planning stages of your home loan journey to improve credit scores and they are steps you do not have to pay someone else to do for you.
One of the first of these is to pull your credit report from the three major credit reporting agencies Equifax, TransUnion, and Experian. Know what your credit reports say about you before you begin to work on your mortgage loan.
When you find out what your credit reports say about your borrowing and repayment habits will tell you a great deal about what to do next. Does your credit history have problems because of late and missed payments?
If so you will need to put a full 12 months of on-time payments on all financial obligations behind you BEFORE you apply for a mortgage loan. This is one of the best things you can do to start credit repair. The reliable payment history is something your lender will be keen on seeing in your credit reports.
Third Party Credit Repair Companies
Make no mistake, some credit repair tactics offered by third parties may work depending on what they are. But never fall for the sales pitch some may give you when they offer to remove any negative credit information-even accurate details-from your record. It is NOT POSSIBLE to remove accurate negative credit data from your record.
Remember, credit REPAIR, is a different sort of thing than credit MONITORING–you should definitely monitor your credit.
Do Get Home Buyer Counseling
One of the smartest things you can do if you are worried about buying a home with low credit is to call the FHA directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor. The counselor will give you advice on loan planning including ways to make yourself a better credit risk in the eyes of the lender.
FHA Loan FICO Score Minimums
The FHA minimum FICO score requirement is 580 or higher for maximum financing with 3.5% down. But your lendere may have higher requirements-be sure to ask. If your credit scores do not meet FHA or lender minimum requirements, offer to make a larger down payment.
This can help you get closer to loan approval when you apply for a mortgage loan with low credit scores.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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