Up to fifteen percent of consumers in the United States have credit scores between 500 and 599 on an 850-point scale. According to FICO, that’s rated as a poor to fair credit score.
Also, 10% are between the 600 and 649 ranges. It’s considered fair credit.
Can you receive a mortgage with bad credit? Well, you are in good company when you have a less-than-ideal score. With the right lender, you can get a mortgage.
Wondering how to get a mortgage with bad credit? That’s what this article will cover in detail.
What’s Bad Credit Score for a Mortgage?
When you can’t get a loan, your credit score is bad. The same applies to getting a mortgage. With bad credit, you may only have access to a larger down payment before you qualify for a loan.
However, what is termed “bad” is according to the kind of loan you apply for – VA, USDA, or FHA. In a recent study, more than 90% of the most successful buyers of homes often have a 650 or higher credit score.
Can You Get a Mortgage With Poor Credit?
Before you learn how to get a mortgage with bad credit, it’s good to have a broader understanding of what that means. The range of credit scores is from 300 (low) to 850 (excellent). Here is how FICO classified the scores:
- 800 or more (Exceptional)
- 740 – 799 (Very good)
- 670 – 739 (Good)
- 580 – 669 (Fair)
- Below 580 (poor)
So what’s the typical credit score you need to secure a mortgage? You need a score of at least 620 for a conventional mortgage. This kind of loan isn’t backed by any government agency.
You may have limited options when you score lower. Remember that a 620 score is within the acceptable range.
Why can’t you still get a conventional mortgage with a score of 590 or 600? It’s because a home loan is a significant undertaking. Therefore, lenders will be cautious about granting you credit in mortgage form.
Tips for Getting a Mortgage With a Bad Credit
You need to go about the process of getting a mortgage strategically if your credit is on the low side. Here are some tips.
- Search for loans tailored towards borrowers with bad credit. There are several options now available.
- Get someone who has great credit and can cosign your mortgage. With this, your mortgage approval should come easier. Don’t forget that this is a financial risk you ask someone to take. Therefore, know the number of houses within your means.
- Search around for lenders that provide the kind of loan you seek. Are you interested in an FHA loan? Then simply contact a minimum of four FHA lenders. Check what they have to offer.
- Reach out to community banks. Some of them provide borrowing plans that are more flexible than national banks.
- Work with a mortgage broker. Mortgage brokers will be able to match you with lenders that fit your credit score.
- Search for online banks and credit unions. Who knows, you may see few borrowing options that meet your needs and condition.
Conclusion
While having an excellent credit score will make it easier for you to secure a mortgage, a bad score will give you issues. However, there are several options you can pursue to get a mortgage with a poor credit score. Contacting a few community banks may help you get your foot in the door for a mortgage. Finally, follow the tips here to get a mortgage with bad credit.