On an 850-point scale, up to fifteen percent of American consumers have credit scores between 500 and 599. According to FICO, this credit score ranges from poor to fair.
In addition, 10% fall between the ranges of 600 and 649. Considered to be acceptable credit.
Is it possible to obtain a mortgage with bad credit? When you receive a less-than-perfect score, you are in good company. With the right lender, it is possible to obtain a mortgage.
How do you obtain a mortgage with bad credit? This is what this article will discuss in depth.
What is a Bad Mortgage Credit Score?
When you are unable to obtain a loan, your credit score is poor. The same holds true for obtaining a mortgage. Before you qualify for a loan, you may only have access to a larger down payment if you have poor credit.
However, the definition of “bad” depends on the type of loan you apply for – VA, USDA, or FHA. According to a recent study, more than 90% of the most successful homebuyers have a credit score of 650 or higher.
Is it possible to obtain a mortgage with poor credit?
Before learning how to obtain a mortgage with bad credit, it is advisable to have a general understanding of what this term entails. The credit score range is between 300 (low) and 850 (excellent). Here is how FICO categorizes scores:
800 or higher (Excellent)
740 – 799 (Very good)
670 – 739 (Good)
580 – 669 (Fair)
Below 580 (failure)
What is the average credit score required to obtain a mortgage? A minimum credit score of 620 is required for a conventional mortgage. This type of loan is not guaranteed by the government.
When your score is low, you may have limited options. Keep in mind that a score of 620 falls within the acceptable range.
Why is it impossible to obtain a conventional mortgage with a 590 or 600 credit score? Because obtaining a mortgage is a substantial undertaking. Therefore, mortgage lenders will be cautious about extending you credit.
Advice for Obtaining a Mortgage with Poor Credit
If your credit score is relatively low, you must approach the mortgage application process strategically. Here are some tips.
- Look for loans designed for borrowers with poor credit. There are currently several options available.
- Find someone with excellent credit to cosign your mortgage. This should make the mortgage approval process easier. Don’t forget that you are asking someone to take a financial risk.
- Therefore, you should know how many homes you can afford.
- Search for lenders that offer the type of loan you require. Are you considering an FHA loan? Then contact no less than four FHA lenders. Check out their offerings.
- Approach community banks. Some of them offer more flexible borrowing options than national banks.
- Employ a mortgage broker. Brokers of mortgages will be able to pair you with lenders who match your credit score.
- Look online for banks and credit unions. Who knows, you may find few lending options that meet your requirements.
Conclusion
While an excellent credit score will make it easier to obtain a mortgage, a poor score will cause problems. However, there are a number of options available for obtaining a mortgage with a low credit score. Contacting a few community banks could help you gain access to a mortgage. Follow the tips presented here to obtain a mortgage with poor credit.