Home Loan With Bad Credit: Credit Scores

It is possible for a home buyer to qualify for a home loan with bad credit.  There are several variables in getting a home loan with bad credit.  Mortgage lenders understand that people go through periods of bad credit due to loss of employment, medical reason, divorce, or other extenuating circumstances that lead to a loss of income or substantial reduction of income where they fall behind in making their regular minimum monthly payments where it affects their credit scores and their credit scores drops.  Mortgage lenders do have minimum credit score requirements for mortgage loan programs.  For example, to qualify for a FHA loan with a 3.5% minimum down payment, a mortgage loan applicant needs a 580 FICO credit score.

Credit Scores Under 620 FICO

However, having credit scores under 620 FICO, the debt to income ratios are restricted at 43% DTI.  If you have credit scores over 620 FICO, then the debt to income ratio gets greatly increased to 56.9% DTI.   To qualify for a conventional loan, the minimum credit score required is 620 FICO.  However, with conventional mortgage rates, the lower your credit score, the higher your mortgage rates.  To get the best conventional mortgage rates, the conventional mortgage loan borrower needs a credit score of over 740 FICO.  With FHA mortgage rates, anyone with a 640 FICO credit score, they will get the best FHA mortgage rate possible.

FHA 203k Loans

Most mortgage lenders require a credit score of 640 FICO for 203K mortgage loan programs.  A 660 FICO credit score is required for Homepath mortgage loan programs.  Portfolio lenders who specialize in condotel loans and non-warrantable mortgage loans require a minimum of a 680 FICO credit scores.  Most Jumbo Mortgage Lenders require credit scores of at least a 720 FICO and to get the best Jumbo mortgage rates, Jumbo mortgage lenders will require credit scores north of 740 FICO.

Getting Qualified For Home Loan With Bad Credit

If you are thinking of buying a home in the very near future, you should consult with a mortgage lender as soon as possible and see if you are currently qualified for a residential mortgage loan.  If you are not qualified for a residential mortgage loan due to lower credit scores, there are some quick fixes that your mortgage lender can advise you to do to boost your credit scores up.  For example, if your credit scores are at 579 FICO, you will not qualify for a 3.5% down payment FHA insured mortgage loan because the minimum credit score required for a FHA loan is 580 FICO.  Getting a one point boost in your credit scores should not be too difficult.  You can probably get a several point boost in your credit scores by just paying down your credit card balances.  Or if your credit scores are at 579 FICO because you have no active credit accounts, getting one secured credit card can boost your credit scores up by 20 or more FICO points.

How Fast Can My Credit Scores Be Boosted Up To Qualify For mortgage?

Improving your credit scores takes time.  For example, if you were to get a secured credit card to boost your credit scores, it will take at least a week or more to actually get your secured credit card.  Once you use it, depending on when you get your secured credit card, it will not post to the three credit reporting agencies until the end of the month and your new credit scores will be reflected in the beginning of the month.  For example, say you apply for a secured credit card May 1.  You will most likely get your secured credit card on May 10th.  You use your credit card and your credit statement will post by May 31st.  The three credit bureaus will have your new credit posted by June 5th.  So in a little over 30 days, your new credit card will be posted to all three credit reporting agencies.  Same concept goes with high balance credit cards.  If you are intending on paying down your credit cards to boost your credit scores, you need to pay for them early enough so that it posts to all three credit reporting agencies by the end of the month so your new credit balance information will be reflected on your credit report by the beginning of the following month.

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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