Can I buy a house with bad credit?
Mortgage Acuity
Mortgage Acuity
Published on May 13, 2022
Woman typing on a laptop with a credit card in her hand.

Can I buy a house with bad credit?

Buying a home is on everyone's bucket list. Whether you want to buy a home because you finally want to settle down, or you are tired of paying rent and ready to invest in an appreciating asset, buying a house can be overwhelming.

Verify my mortgage eligibility (May 28th, 2022)

 Starting the home buying process with bad credit can make it seem nearly impossible to get a loan, but did you know there's such a thing as a bad credit home loan? There are steps you can take before applying for a mortgage that will help improve the odds of qualifying.

While many lenders are increasing their minimum score requirements  -  especially big banks  -  there are loans available to homebuyers with credit scores as low as 500.

If you have a score lower than 500, getting a mortgage is harder. Focus instead on getting your credit score up to at least 500. With a 500 credit score, and 10% down payment, you may be eligible for an FHA mortgage. With a VA mortgage, you need no down payment with a 500 score. That's 100% financing.

Verify my mortgage eligibility (May 28th, 2022)

The mortgage lenders consider a bad credit score as one that is below 620. They consider a good credit score to be at least 620. Even with a higher credit score, an FHA mortgage is still a great option to check out  -  the rate and payment may be lower than conventional. Also the requirements may be easier, helping you qualify.

If you are looking for a loan with a low down payment and have less than 20% of the home's value saved up, then you might be eligible for an FHA loan. With a 580 score, you can put down 3.5% on your new home. With a 500 score, the down payment requirement is 10%.

A mortgage lender will consider your credit score when you apply for a mortgage. There are three main credit reporting agencies in the US: Experian, Equifax and TransUnion. They provide lenders with your credit history, which is used to determine your eligibility for a loan. While the models used to calculate the scores may be the same for everyone, the results are different.

Verify my mortgage eligibility (May 28th, 2022)

Your bad credit is not the same as another's bad credit. Just as your good credit is not the same.

No two scenarios are the same. In addition to your credit score, lenders will be looking at:

How much you have available for a down payment
Your overall debts and the payments required
Your gross monthly income
Your history with making payments  -  do you have any collections? repossessions? Bankruptcies? Foreclosures? And has your payment history improved since the event?

Verify my mortgage eligibility (May 28th, 2022)

Once you buy a home, even with bad credit, with a record of ontime mortgage payments and no further negative credit events, you can refinance into a mortgage with better terms later on. A mortgage is a large loan and paying it on time will go a long way to repairing your credit.

You have options when it comes to selecting a mortgage to buy a home. The main ones are:

FHA Loans
An FHA loan is backed by the Federal Housing Administration. For a first-time home buyer, FHA loans are great because they require a low down payment.
The minimum credit score for an FHA loan is 500.
You many only use an FHA loan to buy your primary residence. You can buy a 2 - 4 family home using an FHA mortgage, renting the other apartments to help pay your mortgage.

Verify my mortgage eligibility (May 28th, 2022)

VA Loans
For veterans and those currently serving in the military, a VA loan is a solid option. VA loans are guaranteed by the Department of Veterans Affairs. There is no down payment requirement for a VA loan  -  $0 down. There is a one time funding fee that is usually financed along with the purchase of your new home.
A VA loan has no specific credit score requirements. Lenders are allowed to set a minimum  -  we can do VA loans with credit scores of 500 and above.

USDA Loans
A USDA loan is another government backed loan, this time backed by the US Department of Agriculture. If you are buying a home in a qualifying rural area area, a USDA loan is $0 down payment.

Conventional Loans
Lenders often want a minimum credit score of 620 for a conventional loan. A conventional loan is the standard loans we hear about. With a lower than 20% down payment, mortgage insurance will be required as well.

The bottom line is  -  yes  -  you can buy a home with a credit score as low as 500. If you have saved enough for a down payment, and closing costs, you are well on your way to buying a home. When it comes to choosing the best loan for you, it's important to see the whole picture  -  income, savings, credit history, payment history, and the home's purchase price to make the best choice.

Show me today's rates (May 28th, 2022)
Mortgage Acuity
Mortgage Acuity Hackensack NJ
Click to Call or Text:
(201) 500-4186