500 Credit Score Mortgage Options
There are very few lenders that offer home loans to borrowers with credit scores below 580. Fortunately, there are some low credit mortgage programs which are designed to help people with bad credit. This includes options for people with credit scores between 500-579.
For many home buyers, they are finding most lenders are not able to help with very low credit scores. However, there are numerous mortgage options available, including fixed-rate, adjustable-rate, FHA, VA, and USDA loans, each tailored to different financial situations and borrower needs. We are able to help with these loan options despite having low credit scores. Simply complete this short loan scenario form and a loan officer will contact you to discuss your options.
United Mortgage Corp., NMLS #1330
Qualifying for a mortgage with Low Credit Scores
Preparing to qualify for a mortgage with poor credit well before you apply is critical. Often times your approval is not just about credit scores, but also some of the other compensating factors.
Compensating factors are things that offset having poor credit. Some of those are as follows:
- High income
- Cash reserves
- Stable employment
Whenever your credit scores are very low, the loan file will likely have to be manually underwritten. Having high income or a low debt to income ration signals to an underwriter that you have the ability to comfortably repay the loan. Having significant cash reserves remaining after closing also sends positive signals about your ability to repay. Finally, stable employment without job flipping is another compensating factor to help qualify.
Derogatory Items on your credit report – Often times it is not just about your scores and our loan officer may request you to contact a creditor to have a derogatory mark removed. If you have disputed something, you may also need to have the disputes removed. This is just part of the process and you will be helped in this area.
We recommend you speak with us now even if you are not buying for a few months. this will allow for some time to put you in the best position for an approval even with scores between 500-579.
FHA Loans for 500-579 Credit Scores
Can you get an FHA loan with a 500 credit score? Yes, you can get an FHA loan with credit scores down to 500.
Most FHA lenders require that you have a credit score of 580 or higher in order to get an FHA loan. However, we will work with borrowers with credit scores between 500-579. If you would like to see if you qualify for an FHA loan, we can help you today. To have an loan officer contact you, fill out this form.
Keep in mind, if your credit score is below 580, you will be required to put 10% down for an FHA loan. If your credit is above 580, you may qualify for a 3.5% down payment.
Your loan scenario may also require compensating factors when your scores are between 500-579. Some of these compensating factors may include a low debt to income ratio or excess reserves after closing. These are the two most common factors that would help with your FHA loan approval.
Adding a cosigner will help to bring additional income to the application, but it does not help with low credit scores.
USDA Loan with a 500 Credit Score
USDA guidelines permit credit scores as low as 500. In fact, there is no minimum credit score requirement for USDA loans. However, the difficulty is finding a lender who is able to originate loans with scores that low, but we can help.
We know the USDA loan guidelines also have property location requirements. The property must be located in an area designated as being “rural” by the USDA.
USDA loans also have income limits which means if you earn too much, you may not quality. The program is designed for people who are at or below the median income level for your area.
Read our article about how to qualify for a USDA loan to see whether this option makes sense for you. If you already know you would like a USDA loan, then contact us here.
500 Credit Score VA Mortgage Lenders
The VA guidelines do not have a credit score minimum which means you can buy a house with a 500 credit score using a VA loan. Although credit scores in the 500’s are permitted, in some instances you may need a down payment. It will be based upon what the automated findings reveal.
Some factors that will help your approval chances include high income, low debt to income ratio, reserves, and a steady employment history. VA disability income is considered to be stable and an alternative to having a job. Read more about qualifying for a VA loan.
The good news is we are willing and able to help if your scores are 500 or more. Our loan officers will work with you to fit any potential credit issues or disputes, but the score itself will not prevent you from buying a home with a VA loan. Just contact us here and we will help you to get pre-approved.
Wells Fargo 500 Credit Score Home Loan
In the past, we have seen advertisements for the Wells Fargo 500 credit score home loan. We recently spoke with one of their loan consultants to ask if they can help consumers with credit scores down to 500.
The response we received was there are no programs that Wells Fargo is offering that will allow for credit scores down to 500. As a result, Wells Fargo is not going to be an option for you with credit scores in the low 500’s. Their minimum credit score requirement for a home loan will be in the low 600’s.
If you need help with scores as low as 500, then complete this short form and we will contact you.
Home Equity Loan with a 500 Credit Score
Lenders who offer home equity loans or HELOCs will need credit scores to be over 620. With those programs, you keep your primary mortgage in tact but secure a home equity loan or HELOC as a second mortgage to cash out equity.
If you have poor credit, you can still cash out equity but it will be in the form of a cash out refinance. This involves refinancing your current mortgage for a higher amount cashing out the equity that you need all at once.
Frequently Asked Questions
What is the minimum credit score needed to qualify for an FHA loan?
The minimum credit score needed to qualify for an FHA loan is 500. However, to take advantage of the low 3.5% down payment option, a credit score of at least 580 is required.
Can I get a conventional mortgage with a low credit score?
You can get a conventional mortgage with a low credit score, but it typically requires a higher down payment and may result in higher interest rates. Conventional guidelines require a minimum credit score of at least 620.
What steps can I take to improve my credit score quickly before applying for a mortgage?
To improve your credit score quickly before applying for a mortgage, pay down credit card balances, avoid opening new accounts, dispute any errors on your credit report, and ensure all bills are paid on time.
Are there specific lenders that specialize in mortgages for people with low credit scores?
There are specific lenders that specialize in mortgages for people with low credit scores, including non-bank lenders, credit unions, and online mortgage companies that offer flexible qualification criteria and tailored loan programs.
How does a low credit score affect my mortgage interest rate?
Lenders view borrowers with low credit as high risk applicants. A low credit score affects your mortgage interest rate by making it higher vs if you had better credit scores. This results in higher monthly payments and increased overall loan costs
Can I qualify for a VA loan with a low credit score?
You can qualify for a VA loan with a low credit score, as the VA does not set a minimum credit score requirement. However, individual lenders typically prefer a score of at least 620.
What other factors do lenders consider if I have a low credit score?
Lenders consider several other factors if you have a low credit score, including your debt-to-income ratio, employment history, savings and assets, down payment amount, and overall financial stability.
Are there any first-time homebuyer programs for individuals with low credit scores?
First time home buyer programs exist but many of them have minimum credit score requirements. You may find a local charitable organization that is willing to offer the assistance with low credit scores.
How much of a down payment is required if I have a low credit score?
If you have a low credit score, you can get a low down payment or even zero down depending upon the loan program you select of if you have VA eligibility.
Can I get a mortgage with a co-signer if my credit score is low?
You can always add a co-signer to help bring additional income to the application. However, a co-signer does not help if you have low credit because lenders will use the lower score between both applicants.
What Others are Saying
Eric Jeanette – “You can qualify for a mortgage with a 500 credit score if you have compensating factors that will minimize risk for the lender”
Gustan Cho – “In today’s economic environment, it is important to have lenders who can help with a 500 credit score”
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United Mortgage Corp., NMLS #1330
