Low Credit Score Mortgage Options For Homebuyers

Gustan Cho Associates are mortgage brokers licensed in 48 states

Having bad credit can be expensive. Consumers with Low Credit Scores will not just be affected by higher interest rates on FHA Loans but consumers will pay higher rates on all types of credit.

Here are some examples of higher costs consumers with low scores than someone with a higher score:

  • Higher mortgage interest rates
  • Higher interest rates on credit cards
  • Higher interest rates on auto loans
  • Higher interest rates on just about everything

In this article, we will cover and discuss qualifying for a home loan without high credit scores?

The Importance Of Credit Scores When Qualifying For A Mortgage

Homebuyers can qualify for FHA Loans with credit scores down to 500 FICO. HUD requires a 580 FICO for a 3.5% down payment FHA Home Purchase Loan.

Homebuyers can qualify for FHA Loans with credit scores down to 500 FICO. HUD requires a 580 FICO for a 3.5% down payment FHA Home Purchase Loan. Borrowers with credit scores between 500 and 579 FICO can qualify for FHA Loans with a 10% down payment. Just keep a note that borrowers with under 640 FICO will be paying a higher mortgage interest rate than those with higher scores.

Mortgage Process With Bad Credit And Scores Down To 500 FICO

We all know that a creditor or lender will run a credit check when a mortgage loan applicant applies for a home loan.  Home Buyers can qualify for FHA loans with low scores, but they need to be aware that they will be paying a higher mortgage interest rate.

How Mortgage Underwriters Analyze Credit Scores

Here are the basics of the mortgage process:

  • The lender reviews the borrower’s credit score, credit payment history, income, derogatory credit and makes a decision of whether or not to grant credit
  • Credit checks are not just done by lenders but by creditors and insurance companies
  • Credit checks are pulled when someone applies for insurance as well
  • When an insurance company does a credit check on an insurance applicant, they get an insurance credit score
  • The insurance score is what determines the risk of the insurance policyholder:
  • That insurance credit score is what dictates the premium the insurance application will be charged
  • A low score means a higher insurance premium

How Credit Scores Affect Employment

A large percentage of employers now run credit checks as part of their application process.

A large percentage of employers now run credit checks as part of their application process. It was not uncommon before for employers to run criminal background checks. But now many employers run credit checks. Having low credit scores can affect a job applicant’s chances of employment and/or promotion. A good friend of mine had always wanted to work for this company which we will call One Solution Real Estate. One Solution Real Estate is a great company that requires its applicants to have college degrees, have a clean criminal record, and have both a criminal and financial background investigation as part of their hiring process.

Case Study On Having Low Scores And Bad Credit

My friend, John, graduated from the University of Michigan with a bachelor’s of science degree in accounting. Also graduated from Ohio State University with a master’s of business administration and applied for a position with One Solution Real Estate. He had three interviews and was almost sure he would get a job offer. Unfortunately, he was denied a job due to his low credit scores and poor credit history. The company had a minimum 680 credit score requirement. The person who interviewed John liked John very much and told him to see if he can raise his low credit score and reapply. John went to work and worked on rebuilding his credit. It took John about 18 months to have his credit score surpass the 680 mark. He eventually got a job offer with One Solution Real Estate.

Credit And Career In Financial Services Field

Credit Scores fluctuate up and down monthly especially with consumers with a lot of credit cards. Maxed-out credit card balances will lower credit scores substantially. Lower credit scores will not only cost higher interest rates and higher insurance premiums, but it could cost a job candidate a job as well. Everyone should be conscious of their credit score. Check it at least every six months for any errors.  Late payments should be avoided at all costs. One 30-day late payment can drop scores by more than 50 points. This holds true even if the minimum payment were five dollars.

Update on Employment And Credit Scores

A low credit score is not the only factor a prospective employer will take a look at when evaluating a job applicant for a new hire or for a promotion.

A low credit score is not the only factor a prospective employer will take a look at when evaluating a job applicant for a new hire or for a promotion. They will also review the overall credit history of the job applicant and will pay more attention to the applicant’s credit history in the past 12 months. Employers will recognize that people go through hard times. A period of bad credit is understandable but not continuous periods of late payments, collection accounts, and charge-offs. They will view job applicants with consistent periods of bad credit and recent bad credit as if the applicant has total disregard for credit and is irresponsible.

Preparing To Qualify For An FHA Loans With Scores

Borrowers with low scores should prepare in advance in improving their credit scores prior to applying for a home loan.

Here are ways of maximizing credit scores:

  • Pay bills on time and never be 30 days or more late on any bills that report to credit bureaus
  • For maximum score optimization, keep credit card balances under 10% of the credit limit
  • Consumers who have no revolving credit, get three secured credit cards with at least a $500 credit limit
  • Do not apply for new credit
  • Do not dispute derogatory items unless there is proof that the derogatory item does not belong to the borrower
  • Whenever consumers apply for new credit, hard credit inquiries will lower scores
  • Go to www.myfico.com and check out the FICO SIMULATOR/ANALYZER
  • The above will give case scenarios of potential credit score improvement

Borrowers with any further questions on this topic, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. We are experts in helping our clients boost, rebuild, and maximize their credit so they can qualify for a mortgage at the best rates.