The credit score it takes to get a mortgage

To buy a house you need to have at least a good credit score, provable income that supports your ability to repay the mortgage as well as sufficient reserves and a to use for a down payment. If you’re looking to buy a house here’s what you need to know if your credit needs tender loving care

Whether buying a home or refinancing a home you already own most mortgage companies have a minimum credit score requirement. Conventional loans require a 620-credit score. FHA Loans which are loans insured by the Federal Housing Administration have far less tight credit requirements as such many banks and lenders have a minimum credit score requirement of 620, some offer FHA Loans as low as 600 and some believe it or not at 580.

If you have a mortgage lender that’s willing to do your mortgage credit score with a less than 580 score you have a diamond in the rough as most banks want loans that are quicker to the green and are not interested in working with folks who need a little bit more attention it. Unfortunately, that’s just the truth

If your credit score is 580, your new your file will need to pass automated underwriting that means any previous debts, old collections that still have balance, old skeletons in the closet of any kind are going to have to be zeroed by close of escrow. Also, in such situations the debt to income ratio is a far more important than it is if their credit score was in the 620 or higher range. It’s not unreasonable to think that a 580-credit score would contain a minimum debt to income ratio requirement of 45%.

So, what happens when your credit score is below 580 and you’re still looking to purchase a home or refinance a home? That’s where things get interesting. Income, down payment and at least two months of mortgage payments in the bank and equity in your home would become far more important valuable to have.

Such anchors are called compensating factors in the lending industry-good things to offset negative things. Here’s an example of a situation a pragmatic bank would look at $300,000 loan, Cash out refinance, owner-occupied house with 40% equity in the property 550 credit score with 6 months of mortgage payments in the bank and W-2 wage earner type scenario. A bank that would do a loan with a 580-credit score probably would entertain that type of scenario as well too-perhaps on an exception. It is worth investigating.

So, when you’re looking for a mortgage with less than a 580-credit score ask them what their minimum requirement is? If it’s less than 580 ask them if they ever closed a loan for a borrower with a less than 580 credit score and if yes in what type of circumstance? Ask them if an exception can be made? Many banks might be willing to make an exception if they have a low credit score requirement anyway something to think about when purchasing or refinancing a house.

Looking to apply for a mortgage? Get a no cost quote now.




Why your income is the biggest driver of purchasing power

Why your income is the biggest driver of purchasing power

When it comes to purchasing a home, your monthly income is the most influential factor,…

How to ease lending qualifications when buying a home

How to ease lending qualifications when buying a home

Hey there, fellow dreamer! Are you ready to take the leap into homeownership and turn…

5 practical ways to increase your purchasing power when buying a home

5 practical ways to increase purchasing power when buying a home

Buying a house today can be an arduous task, especially when you consider the many…

Scott Sheldon's The Mortgage FIles Blog

How the housing industry may be affected by the upcoming real estate changes

The recent settlement involving the National Association of Realtors regarding real estate agent compensation has…

View More from The Mortgage Files:

begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!