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There are any number of reasons why you may have a lower credit score. You may just not have had enough time to establish a credit score. Ironically, people without much debt may have lower scores than people who have high debts but make their minimum payments on time. Or, there are those of us who have had financial problems in the past. You may be in better shape now, but your FICO score hasn’t quite recovered yet.
The good news is you still may be eligible for a home loan, even with a bad credit score. Your credit rating is just one financial factor that mortgage lenders will review along with your total debt, down payment, employment/income history and other standard indicators of financial health. Naturally, a higher credit score is beneficial when applying for a mortgage loan. However, a low score shouldn’t discourage you from trying if you think you are ready to buy your first home or move up to a larger property in the Atlanta, GA area.
What is a Good Credit Score?
Here is a range of how most mortgage lenders will determine if your FICO score is “good,” “bad” or somewhere in between:
• Below 580 = Bad credit score
• 580-669 = Fair credit score
• 670-739 = Good credit score
• 740 or higher = Excellent credit score
There are some Atlanta home buyers who may qualify with credit scores as low as 500. It all depends on the lender, the type of mortgage loan and the other financial factors as noted above. Lenders will review everything and help you find a mortgage solution that’s best for your financial situation.
Types of Mortgage Loans
There are a number of different mortgage programs that may offer more lending options for borrowers with poor credit scores. Be sure and ask your lender about which program(s) you might be eligible for as a home buyer. Here are some standards to consider:
FHA Loan—A home buyer may qualify for an FHA mortgage loan with a credit score as low as 500, as long as they put at least 10% down on the property. Otherwise, a minimum credit score of 580 is required for the lowest possible FHA down payment of 3.5%.
VA Loan—The minimum credit rating for a VA loan may range from 580-620, depending on the lender. A VA mortgage borrower can qualify for a zero down payment loan. However, VA loans are only available to active military service members, retired veterans and surviving spouses who meet specific eligibility requirements.
USDA Loan—These loans are available to low-to-medium income borrowers in approved “rural” areas. In fact, there are some Georgia counties outside of Atlanta that meet the geographic eligibility requirements. A minimum credit score of 640 is generally required.
Conventional Loans—Borrowers with moderate-to-good credit can qualify for a conventional mortgage loan with a credit rating of 620 or higher.
Other Low-Credit Lending Solutions—There are other loan programs out there like Freddie Mac Home Possible and Fannie Mae HomeReady that are available to low-to-moderate credit borrowers. These programs generally require a minimum credit score of 620. Then, there are non-qualified mortgages (Non-QMs) that don’t qualify for conventional or government-backed loans. These may only require a minimum down payment of 500-580, depending on the mortgage lender and how much risk they are willing to take.
Mortgage Qualification with a Bad Credit Score
Having your other finances in order will be helpful to overcome a low credit score. If you can make a higher down payment, show a strong employment/income history, have money in your bank accounts and have a low debt-to-income (DTI) ratio, you may still be able to qualify for a good home loan. A lower credit score could lead to higher interest rates, which is okay if you can comfortably afford the monthly payments. You may be able to refinance your home loan in the future when you qualify for a lower mortgage rate.
No matter what your financial situation, it never hurts to talk with an Atlanta mortgage lender to explore your options. See which mortgage programs may be available to you and go through the mortgage pre-approval process to see if you qualify. This will allow you to know how much home you can afford and ensure that your financing is solid when you are ready to start searching for properties and making purchase offers. You may be able to get a great home loan now, even if you have a bad credit score!
To learn more about mortgage loans and low-credit lending options for home buyers in Atlanta GA, contact Moreira Team | MortgageRight today.