Your credit scores are important. Credit sometimes seems easy, yet at times can seem so complicated and might not make sense why your scores might be lower.
One thing that I want to make clear is that you don’t need 700 credit scores and or 20 percent down to buy a home.
The mortgage industry has gone crazy lately, so you will hear a lot of chatter of misinformation out on the streets that you need excellent credit and a lot of money down. What is not explained is that there are mortgage programs that allow for less than perfect credit. One of the problems with this is that “less than perfect credit” has many definitions from so many in or out of the mortgage industry. You will see many ads on the internet telling you that you can get a FHA mortgage with “bad credit”, “less than perfect credit”, “no credit”, that they have “loans for people with bad credit”, and so much more. In some cases, it might get done, but you need to be very careful in who are speaking to and not get wrapped up in their ‘promises’ or ‘guarantees’.
So what are the minimum credit scores? Keeping in mind that many lenders have their own over-lays no matter what each agency below states.
Conventional Loans – You can’t go below a 620 credit score no matter what. And you need an automated approval in the system no matter what.
FHA Loans – The beauty about FHA loans is that they can be manually underwritten. FHA says that they won’t insure a loan under a 500 credit score. Many lenders are raising their credit score minimum to 640. At Infinity Home Mortgage, we can still do credit scores from 600 to 639 with common sense underwriting, but the loan will have to make sense. And there are a few mortgage lenders out there that will go down to 580 credit scores. You just need to be very careful of their promises. Besides, anything below a 620, especially below 600, and your mortgage interest rate is going to be extremely high with higher closing costs. (so why not work on those credit scores)
VA loans – Many lenders have cut off scores of 640 or 620. The VA will possibly allow you to go down to a 580 credit score, even though they state that they have no minimum. But finding a lender or investor to do this might be extremely tough.
USDA loans – Many lenders have cut off scores of 640 or 620.
Loans for people with bad credit are in the past, but if you are working with a good loan officer, they can usually help you raise your scores in a specific period of time. But loans for people with less than perfect credit can still be done, depending on the actual credit score and when that consumer had their last rash of lates per se.
Key Reminder : I wanted to kill that rumor that you need 700 credit scores and or 20 percent down to buy a home. With a FHA loan, you can have as little as 3 1/2 percent down and a credit score of 620.
Key Reminder : Be careful of those lenders that can do your credit scores below 620 with a much higher rate, who tell you not to worry because you can refinance in 6 months. Yes, that is true, but at what rate? A very scary unknown. Why not just get your scores up in 2 to 6 months. It could save you thousands of dollars even in the short term.
In part 2, Understanding your Credit Scores, I will get into more detail of how credit scores work and what needs to be done.
- Credit Scores Part 2 – Understanding your Credit Scores