Is it possible to receive a mortgage when your credit score is 580?

A low credit score does not disqualify you from the struggle for your own home. FHA mortgages are available also for clients with a credit score as low as 580. Nevertheless, the average score of the approved mortgages is 686, so is there still hope for poor score borrowers? Good news: yes, there is. And in this article we provide some useful information in order to help you buy a home even with a low credit score.

Low scores and FHA

The facts say that with a credit score of at least 580 you may receive 96.5 percent mortgage and lower scores will require 10 percent down. So where is the problem? – you may think. The problem is a bad credit, not a low FICO score in itself.

What with your bad history?

Your bad actions from the past turn out to be a harmless factor for your financial credibility. Yet, not all weak points of your credit-related behavior influence the score to the same extent. Lenders just need to ensure that doing business with you is not a high-risk situation, thus, if they check your history and they see “continuous slow payments, judgments, and delinquent accounts”- the bad history items indicated by the FHA guidelines- they will not approve your application. In such circumstances you need to offer some compensation in order to get a loan. Of course, if the bad actions took place a long time ago and you have already proved to be financially credible (in the period of at least 12 months), your chances grow.

Compensating factors

These most powerful and beneficial for you are:

  • Downpayment – must be higher than average, between 5 and 10%
  • Debt-to-income ratio – take care of lowering it to at least 38%
  • Housing expenses which are higher than the possible new ones including a loan costs
  • Impressive savings

Downpayment in the case of low scores

If your score is less than 686, you must be prepared for higher downpayment. You should also work on a better ratio between your debt and income.

What to do to pay less?

It seems sensible to find a few options to choose between. Check out more lenders and their conditions, since the lender can give you a loan regardless of your lower score, but he can also decide not to do this or just offer you too high interest. If you want to have a choice and be offered with lower interests you need to find more than one option to consider.

Last resort – what if not FHA?

The potential homebuyers have an alternative to FHA. If your efforts to obtain the FHA loan end up with failure, avoid giving up your dream of the own home immediately. Another option for you is a non-prime loan. As distinct from FHA, it will demand more downpayment money – starting from 15 % with the marginal 580 score, and even more, depending on how poor the score is. Unfortunately, the costs of all fees and interest included in the non-prime loan are also much higher than it is in the case of FHA.

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