What Mortgage Options Do People With Bad Credit Have

The thought of buying a house with bad credit can seem impossible. But you might be surprised at the wide range of loans available for homebuyers with bad credit. Your poor credit score might not be much of a roadblock as you think, and with a credit score of above 600, you may have even more mortgage options.

But what credit score do creditors consider bad? The truth is, lenders have no specific minimum credit score. Private mortgage companies are free to set their requirements when evaluating your credit score. Private mortgage rates differ depending on your financial situation and property. But you might find getting a loan difficult with a credit score below 500. Here are some mortgage options if you have a bad credit score.

FHA loans

An FHA loan is a government-backed loan to borrowers with low credit scores of 580. Some lenders even start at credit scores as low as 500-579. Backed up by the Federal Housing Administration, these loans make it possible to buy a house with a poor credit score, and they don’t carry risk-based pricing. Risk-based pricing is a free assessment of loan applications with poor credit scores. However, you have to put in a 10% down payment. Another requirement is that you can only access an FHA loan to buy a primary residence.

VA mortgage

VA mortgage loans are available to service members, veterans, eligible spouses, and military-affiliated borrowers. VA loans are backed up by the Department of Veteran Affairs and have the lowest interest rates in the market. They also do not require a down payment or continuous mortgage insurance payments. There is no specific minimum credit score for VA mortgages, but many lenders require a minimum credit score of 580-620. Additionally, a VA mortgage does not impose risk-based pricing adjustments, so low and high score applicants can get similar rates.

USDA loans

A USDA loan is also backed up by the government and specifically the US Department of Agriculture. USDA loans are preferable for their low rates and zero down payments. You can qualify for this loan with a credit score of 640, although the minimum credit score requirements differ from one lender to another. These loans are meant to increase homeownership in the rural areas though some suburbs make the cut. You can buy a home in a qualifying rural area with a USDA loan, but it won’t work if you have much income. Your income cannot be more than 15% higher than the average household income in your area to qualify for this loan.

Conventional loans

Private mortgage lenders in BC give loans to borrowers with low credit scores. No specific minimum credit score is required to qualify for a conventional loan, but a 620 credit score is better. It is easier to be eligible for conventional loans with a lower than 620 credit score if you have a higher down payment and more income.

The final words

Your best home loan option depends on how bad your credit score is and your financial situation. You can even be eligible for a second mortgage for home renovation, debt consolidation, or business capital with a low credit score. But ultimately, you still have to work on improving your credit score.