How To Qualify For A Mortgage With A Low FICO Score?

What Is A Low FICO Score According To Mortgage Lenders?

Mortgage lenders generally consider a credit score of 580 or below as a low FICO score. In Texas, you must have a minimum FICO Score that meets the requirements set forth by the lender to be eligible for a mortgage. The minimum credit score criteria might change from lender to lender depending on the loan option. For instance, your FICO score must typically be 620 or above to qualify for a conventional loan. However, if you provide at least a 10% down payment, you may be eligible for an FHA loan with some lenders with a FICO scores as low as 500.

Additionally, the lender may see the application as risky if a borrower’s FICO score is less than 670. Generally speaking, a credit score of 670 or more is regarded as good. A score below 579 is categorized as poor credit, and a number between 580 and 669 is considered fair credit. Until your credit improves, you might find it challenging to be approved for any mortgage loan if you have a low FICO score below 500.

In Texas, Mortgage lenders like Dream Home Mortgage offer different mortgages you can qualify for if you have a low credit score. Furthermore, their professional staff will assist you in determining which home loan option is best for you based on your credit score.

Types Of Low FICO Score Loans Available In Texas

Having a less-than-perfect credit score doesn’t mean you cannot qualify for a mortgage. You have different loan options if you have a low FICO score. Let’s take a look at them.

1. FHA Loans

Mortgage lenders can approve FHA loans, which the Federal Housing Administration insures, with a 3.5 percent down payment and a credit score as low as 580. With a 10% down payment, FHA can accept credit scores lower than 500.

2.  VA Loans

A VA loan, backed by the U.S. Department of Veterans Affairs, may be advantageous for you if you are a member of the armed services, a veteran, or married to someone who has served in the military. To be eligible, you don’t need a specific credit score; however, many lenders want at least 620.

3. USDA loans

Consider a USDA loan if you have lower earnings and want to purchase a house in a certain rural location. The majority of USDA-approved lenders require a minimum credit score of 640, though this is not a strict restriction.

Steps To Buy A House With A Low Fico Score

To position yourself as best possible, it’s advisable to raise your credit score before applying for a mortgage. However, if you must obtain a home loan before attempting to raise your credit score, the following tips may increase your chances of being approved even if you have a low FICO score.

1. Check Your Credit Score Before Applying

Check your credit reports before applying for a mortgage or any other kind of financing. When you apply for a house loan, a mortgage lender will examine your credit reports and ratings. Therefore, it’s critical to understand your credit position as well. You can dispute credit errors with the relevant credit reporting organizations if you discover issues on your credit reports.

Additionally, it makes sense to look up your credit score. Be aware that your credit reports will typically not include your credit scores, even though the information in your reports is used to calculate your scores.

2. Compare Different Low FICO Score Mortgage Deals

Before choosing a mortgage, it’s crucial to shop around and compare interest rates and financing options from several lenders, regardless of your credit score. According to government-sponsored company Freddie Mac, homebuyers who take the time to research loan offers could save anywhere from $600 to $1,200 annually. Additionally, to get the best interest rates and loan options, you can contact Dream Home Mortgage.

3. Find Someone To Co-Sign Your Mortgage

If you have a low FICO score, consider getting a friend or relative with good credit to co-sign your mortgage. This can strengthen your application only if the co-signer is prepared to accept financial responsibility.

4. Provide A Larger Down Payment

A low FICO score tells lenders that you are more likely to miss credit card payments by 90 days or more in the upcoming 24 months. It seems reasonable that lenders are reluctant to give money to borrowers who need a better track record of paying their debts on schedule.

However, a higher down payment can lower your loan-to-value ratio. This phrase describes the difference between the amount you borrowed for your mortgage and the home’s appraised worth. Furthermore, it aids the lender in mitigating the increased risk connected to home loans for borrowers with a low FICO score.

5.Pay Down Debt

Reducing debt is another potential strategy to raise your house loan qualifying probabilities. However, it can be complicated. When you apply for a mortgage, lenders consider your debt-to-income (DTI) ratio, which can be lowered by reducing your debt. Additionally, your credit score may benefit from reducing some debt, such as credit card bills.

6. Owning Additional Assets To Qualify 

Another strategy to lower your risk from a lender’s perspective is to increase your money in savings, including investment accounts. Possessing additional assets may suggest to a lender that you have backup plans if you face future financial difficulties, such as losing your work.

FAQS

Ø  Which FICO Score Is Usually The Lowest?

The lowest possible credit score is 300, and a person cannot have a credit score lower than that. Although banks and lenders will see a Fair score (580-669) more favorably, qualifying for their best deals might still be challenging.

Ø  Is 700 A Bad FICO Score?

A credit score of 700 or above on a scale of 300 to 850 is generally considered good. A score of 800 or more is considered excellent in the same range. The majority of consumers have credit ratings in the 600–750 range.

Ø  Why Is My FICO So Low?

Your FICO score is influenced by numerous variables, such as the amount of credit you use, the length of time you’ve had credit, the kinds of credit accounts you have, and the number of hard inquiries on your credit report. With responsible management, these variables can lead to a higher FICO score.

Bottom Line

It might be challenging to qualify for a mortgage with a low FICO score, but it’s not impossible. Different home loan options are available for those with a low FICO score. Additionally, you can make a large down payment to qualify for a home loan if you have a bad credit score. Consider contacting experienced and top mortgage lender like Dream Home Mortgage, who have been in this field since 1998.

Whatever your credit score, their professional staff assist you in choosing the best loan options. Thus, low credit scores are acceptable for you. You need to take the right step at the right time. Therefore, contact Dream Home Mortgage to discover your financing alternatives.