One of the most important factors to consider in the home buying process is how your credit score may affect your chances of getting a mortgage. While it may be possible to buy a home when you have less-than-perfect credit, it may make things a bit more challenging.
Researching mortgages for less than perfect credit is the first step to getting a home loan when your score isn’t as high as you’d like it to be.
What Are Your Mortgage Options?
Each mortgage lender has its own credit score requirements. Keeping that in mind, there are some specific home loan options you may be able to qualify for with a low credit score.
The first is an FHA loan, which is backed by the federal government. If you have a low credit score, you could still consider an FHA loan. There is one catch, however. Being approved for an FHA loan with a lower score means you may have to bump up your down payment. That means you may have to pay more cash out of pocket, but it’s something to consider if you’re set on buying a home.
VA loans are another mortgage for veterans and their families with less than perfect credit. Borrowers may be able to finance all of the purchase price with no down payment requirements.
Getting a Conventional Loan with Less Than Perfect Credit
Conventional mortgage loans, which aren’t backed by any government agency, have their own set of credit score requirements.
One potential work-around when a low credit score is a barrier to getting a conventional mortgage is offering a bigger down payment. A lender may be more willing to approve you for a loan if you have more skin in the game, so to speak. Other factors that may help offset a low credit score include:
- A higher income
- Low or no debt
- An extensive work history with the same employer
- Sizable cash reserves or other assets
It may also be helpful to offer a detailed explanation for a less than perfect credit score if it was caused by a situation that was outside your control. For example, if your score was damaged by identity theft or if an illness kept you out of work so you weren’t able to pay your bills temporarily, you may want to disclose that information to your lender.
The Biggest Caveat to Getting a Mortgage with Less Than Perfect Credit
The most important thing to remember about mortgages for less than perfect credit is that the lower your credit score, the higher your interest rate is likely to be. If you don’t need to buy right away, you may consider working on improving your score before applying. To learn more about how to do that, take a look at our simple guide to increasing your credit score.