Bad credit can be a real problem, but a lot of lenders offer loans for consumers with less-than-perfect credit. Some of the better loan options for those with poor credit include government-backed mortgages, as well as private lenders. These loans tend to be more affordable and have lower fees than those available to borrowers with good credit.
A credit score of around 500 is the minimum needed to buy a house. However, many mortgage lenders will take a risk on applicants with a credit score of 580 or below. The loan will usually come with a higher interest rate, but it may also come with lower down payment requirements and a more flexible debt-to-income ratio.
One of the best ways to improve your credit score is to cut down on your debt. Lenders typically require that you have at least one credit card with a balance of less than 30% of your monthly income. You should also consider reducing other forms of debt, such as payday loans and other personal lines of credit. If you are considering a mortgage, you should pre-qualify for a loan to get an idea of how much you can borrow.
There are also various government programs designed to help low-income borrowers purchase a home. For example, the HomeReady program from Fannie Mae offers low-to-moderate-income borrowers a chance to get a mortgage with a 620 credit score. In addition to this, you will also be able to put down as little as 3%.
The BorrowSmart program from TD Bank is another good option for those with less than perfect credit. This program will provide up to $1,500 towards your down payment and closing costs. While this may not seem like a lot, it can go a long way in making the process of buying a house a little easier.
Another good way to improve your credit score is to ask for a free credit score improvement plan. Your lender should be able to determine which strategies are most cost-effective to raise your scores. They will also be able to recommend the best services to help you.
Before you apply for a mortgage, check out your credit report to make sure it is clean and clear of errors. If you have any problems, contact the credit bureaus directly to correct any mistakes. Getting a new score will take time, but the benefits will be worth it.
It can be tricky to qualify for a conventional loan with a low credit score. The Federal Housing Administration (FHA) and VA mortgages allow for FICO scores of as low as 580, but borrowers will need to meet additional requirements. Most lenders will also want to see a down payment of at least 10 percent.
The right loan program will depend on your financial situation, as well as your current and future income. You can find more information on these programs online or by calling a mortgage loan officer. Once you have a good idea of what you can afford, it’s time to shop for the best mortgage lender.