What Is A Low FICO Score According To Mortgage Lenders?
Mortgage lenders typically consider a credit score of 580 or below as a low FICO score. In Texas, to be eligible for a mortgage, borrowers must meet the minimum FICO score set by each lender, which varies based on the type of loan. For example, a conventional loan generally requires a FICO score of 620 or higher. However, with a down payment of at least 10%, some lenders may allow FHA loans for borrowers with FICO scores as low as 500. Lenders tend to view scores below 670 as riskier, with 670+ considered “good,” 580–669 as “fair,” and below 579 as “poor.” Those with a FICO score under 500 might face challenges qualifying for any mortgage loan until their credit improves.
In Texas, mortgage lenders like Dream Home Mortgage offer a variety of mortgage options tailored for individuals with low credit scores. Their expert team can help you identify the best loan options suited to your unique credit situation. To gain deeper insights and ask questions directly, join Dream Home Mortgage’s FREE Webinar on November 21st, 2024, at 7:30 PM (USA Central Time). Hosted by industry leaders Hussein Panjwani and Sharmyn Weljee, the webinar will cover credit considerations, loan options, and much more. Register now here and secure your spot for this valuable session!
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.
Take the right step at the right time by exploring your financing options with Dream Home Mortgage. For a deeper understanding of mortgage options and the current market trends, join their FREE Webinar on November 21st, 2024, at 7:30 PM (USA Central Time). Hosted by industry experts Hussein Panjwani and Sharmyn Weljee, this interactive session will cover strategies for home financing with low credit scores, loan options, and more. Register now here and secure your spot!
