If your credit score is below 600, you may be wondering if you can still get a mortgage. The answer is yes, but the best home loan option for you depends on how low your score is. If your score is lower than 600, you should consider an FHA or VA loan. If you can qualify for a smaller mortgage and afford a cheaper home, you may want to consider buying a home with restorative properties and using a personal loan to make improvements after you've purchased the home.
It's important to note that the lowest average score is still used to determine the interest rate and the cost of mortgage insurance, so the rate may be slightly higher. However, obtaining a mortgage for a home or refinancing it with less-than-perfect credit may still be more attractive than continuing to pay rent. Your lender will take into account auto loans, student loans, credit card debt, home equity loans, mortgages, and any other recurring debt when calculating your debt-to-income (DTI) ratio. Even if you only increase your credit score from 650 to 665 approximately, you may be able to reduce your mortgage costs significantly.
Investing more money in the mortgage will go a long way towards getting approved, as it shows lenders that you are financially responsible. Your pre-approval will reveal your credit rating, show your current mortgage options, and provide guidance on how to improve your score. The reason for this is that your credit rating may only qualify you for a certain amount of home loan. When you buy a home, there's no such thing as “good credit” or “bad credit” - there's only credit that qualifies.
However, having lower credit scores can affect your mortgage rate, associated fees, or the amount of the down payment you must make. If you have a low credit score, it's harder to get a mortgage loan, but just because your credit is bad doesn't mean you should give up on your dream of owning a home. This is especially important when your credit makes it difficult to find a home loan with affordable terms. You may also be eligible to apply for a larger loan with a co-signer, even if you have bad credit, which may allow you to have a larger budget when buying a home.
You might think that getting approved for a mortgage to buy a home is impossible if you have bad or bad credit. By reducing outstanding balances or debts ahead of time, you're showing potential lenders that you'll also feel motivated to pay your mortgage. An FHA loan also allows you to have a higher DTI ratio than conventional mortgages, as long as you have an average credit score of 620 or higher.