Qualifying For Mortgage With Low Credit Scores And Bad Credit

This BLOG On Qualifying For Mortgage With Low Credit Scores And Bad Credit Was Written By Gustan Cho NMLS 873293

Credit scores and income are two of the most important factors in qualifying for a mortgage.  Borrowers can qualify for Mortgage With Low Credit Scores and bad credit. You can have low credit scores and qualify for a mortgage loan as long as you can documented qualified income.  However, you can have the highest credit scores possible but without documented income, you will not be able to qualify for a mortgage loan.

  • Income documentation is the most important factor for a home buyer to be able to qualify for a residential mortgage loan.
  • Credit scores, credit, and credit history is an extremely important factor as well.
  • There are minimum credit scores required in order to qualify for particular mortgage loan programs.
  • For FHA Loans, to qualify for a 3.5% down payment home purchase FHA Loan, the mortgage loan borrower needs at least a 580 FICO Credit Score and have a history of timely payment history for at least 12 months.
  • The minimum credit score you need to qualify for a VA Loan with The Gustan Cho Team at CrossCountry Mortgage Inc. NMLS 3029 is 580.
  • Borrowers can qualify for Mortgage With Low Credit Scores but many lenders may require higher credit scores due to their lender overlays.
  • For Conventional Loans, to qualify for a 3% down payment conventional home purchase mortgage loan, the mortgage loan borrower needs at least 620 FICO credit scores.

What Are The Minimum Credit Score Requirements

The United States Department of Housing and Urban Development, commonly referred to as HUD, is the parent of the Federal Housing Administration, often referred to as FHA.

  • FHA is a government agency that insures mortgage loans to FHA insured mortgage lenders in the United States. 
  • For a mortgage loan to be able to be FHA insured, the mortgage lender needs to follow FHA lending guidelines. 
  • Part of FHA lending guidelines are minimum credit scores required by FHA mortgage loan borrowers. 
  • FHA requires a minimum of a 580 FICO credit scores from a mortgage loan borrower who wants to purchase a home with a 3.5% down payment. 
  • For home buyers seeking to purchase a home who have credit scores under 580 FICO, a 10% down payment is required.  
  • Minimum credit scores required to be eligible for a FHA insured mortgage loan is 500 FICO. 
  • Mortgage loan borrowers who have credit scores between 500 FICO and 579 FICO, mortgage underwriters will require compensating factors such as reserves, verification of rent, longer term on the job, and other positive factors.
  • Qualifying For Mortgage With Low Credit Scores is very simple. Your credit scores often fluctuate and an experience loan officer has ways of manipulating your credit scores to benefit you and maximize it.

Minimum Credit Scores For Conventional Loans

Home buyers seeking a conventional mortgage loan, a minimum credit score of 620 FICO is required.

  • Fannie Mae and Freddie Mac are the two giant government sponsored enterprises that make up the rules and regulations when it comes to conventional loans. 
  • Conventional loans are extremely credit score sensitive. 
  • The higher your credit scores are the lower your mortgage rates is. 
  • To get the best par conventional mortgage rates, a conventional mortgage loan borrower will need a 740 FICO credit score. 
  • A home buyer is eligible for a conventional mortgage loan with a 620 FICO credit score, however, their mortgage rates will be on the higher end due to the lower credit score.

Mortgage With Low Credit Scores Versus Bad Credit

There are many factors where a consumer with a lower credit score can boost up their credit scores in a matter of a short time.  Those home buyers with low credit scores who do not meet the bare minimum credit score requirements can easily boost up their credit scores with the help of a licensed mortgage loan originator.  There is the FICO Analyzer where a loan officer will input data from the borrower’s credit report and it will state what actions the borrower needs to take to boost up their credit. Most time, just by paying down credit cards will boost the borrower’s credit scores substantially. Other times may be disputing a medical collection account or paying off an outstanding collection or charge off. Some folks have very low credit scores because they have no active credit tradelines.  You can solve this by getting a few secured credit cards with at least a $500 credit limit.  Each secured credit card can boost a person’s credit scores by at least 20 or more FICO points.

Late Payments And Impact On Credit Scores

One recent late payment can plummet a person’s credit scores by at least 50 FICO points or more.  Make sure that you make all of your monthly minimum payments on time.  Multiple late payments in the past 12 months will plummet one’s credit scores by more than 100 FICO points. If you have a recent late payment on your credit report, see if you can contact your creditor and see if they can get you a one time forgiveness and take off the late payment. Many times if you were not late and had a perfect payment history, the creditor will do that for you as a one time courtesy.

Paying Off Collection Accounts

Do not pay off any old unsatisfied collection accounts with credit balances unless the creditor is willing to delete the derogatory item off the credit report.  This is called pay for delete where you negotiate with the collection agency where if you pay off the unpaid collection account balance that they will completely remove the negative collection account off your credit reports.  If the collection agency is not willing to delete the negative item off your credit report, then leave it alone.  You can get a mortgage loan approval with unpaid collection accounts with balances.  Medical collections are normally ignored by mortgage companies and unpaid collection accounts that are medical accounts are normally exempt and ignored by mortgage underwriters.

High Credit Card Balances And Impact On Credit Scores

Too much debt on your revolving accounts is another reason why you may have lower credit scores.  If you have credit cards, make sure you do not exceed more than 10% of your available credit limit as your balance.  Having your credit balance close to your credit limit will definitely plummet your credit scores temporarily until you reduce your credit balance.

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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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