Many mortgage companies along with the internet would have you believe getting a mortgage with bad credit cannot happen. It is true the process will be more difficult and challenging, but it is not impossible. If your desire is to refinance your property or buy a home with less than perfect credit the following information will be of pertinent value to you…
All mortgage companies that do loans operate off a minimum credit score requirement and varies from lender to lender. So, for illustrative purposes, we’re going to assume the mortgage company that you’ve selected to handle your home financing allows a minimum credit score of 600 for an FHA Loan, which is the most popular type of loan suited to a bad credit situation. There is an additional tier that some companies will do even beyond a 600-credit score and typically to as low as 580. Put another way, the minimum credit score that you need for a bad credit mortgage truly is about 580 depending on the lender.
If your credit score is less than 580 your chances of getting a mortgage are slim. Here’s why- remember your credit score is the only barometer the lender has of a likelihood that you’ll go delinquent on a payment obligation in the next 30 days. So, let’s say your credit score is 560. The lender may still do your loan if they can identify compensating factors (which in lending means good things to offset bad things)
Here is what you need if your credit score is less than 580:
solid income with a low debt to income ratio (30 percent debt to ratio or lower as an example)
financing primary single-family home
30 percent equity at least if not more
12 months or more of mortgage payments in the bank for reserves (savings e.g. future mortgage payments in cash in the bank)
Avoid a high-cost loan- based on your desired loan amount and credit score you may only qualify for a high-cost loan, this varies from lender to lender
Mortgage tip: If you’re willing to pay off the debt to qualify by wrapping in and consolidating all of the consumer debts into the mortgage, lowering your monthly expenses, this helps. A lender will consider a lower debt to income ratio as an additional means of support in granting your mortgage request.
Regardless of whether your score is 580 or sub 580 or even in the 600-credit score range, it is still going to mean an FHA Loan as the FHA is the most prominent mortgage loan in today’s lending environment supportive of a dicey financial picture. If you have been turned down before it’s worth it to get a second opinion from a quality lender who is experienced and really knows loans.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.