The credit scores in FICO range from 300 to 850. For those who belong to the lower end of this spectrum, there is still hope for buying your dream house.
Whatever your credit score might be, there is now a loan that can work for you. Here are the 7 mortgages which require low minimum credit scores.
1. FHA Loans
What makes FHA loan appealing is that unlike traditional loans, this doesn’t come with a risk-based pricing. It is also referred to as loan level pricing adjustments or LLPA. This risk-based pricing is the fee assessed to the applications that have lower credit scores or other types of less than ideal traits.
2. USDA Home Loans
Most homeowners find this type of government loan appealing because of the 0 down payment requirement. Many lenders will require 640 FICO score to be qualified for USDA loan but there are others that go down to only 580. But, just remember that you will be more carefully evaluated if your credit score is 580 compared to those with higher credit scores.
3. VA Home Loans
VA loans are famous mortgage loans being offered to the veterans. Such loans don’t require down payment or mortgage insurance. Not like FHA, the VA doesn’t impose minimum credit score requirement. But, many lenders will prefer to see minimum credit scores around 580 to 620 before they approve your VA loan. Just like FHA loans, however, VA loans are free from risk-based pricing adjustments. Even if you have a low score, you can get the same rates as the high credit borrowers.
4. Conventional Loans
The non-government conventional mortgage loans call for higher fees and rates for low credit scores. Freddie Mac and Fannie Mae, the agencies administering most conventional loans in the United States charge LLPAs or loan level price adjustments.
5. Fannie Mae HomeReady™
HomeReady™ is originally introduced in December 2017. This is a great loan program from Fannie Mae meant for low-moderate income borrowers along with an expanded eligibility to finance houses in low income communities. There is no need for you to be a first time home owner for you to qualify for this type of loan.
6. Home Possible®
Introduced in March 2015, Home Possible® is a first time home buyer program from Freddie Mac that helps buyers get their dream house at very low down payment. This is available for moderate and low income borrows, allowing for only a 3 percent down payment. To be qualified for Home Possible® with reduced PMI rates, many lenders require 620 or higher credit score.
7. Non-Qualified Mortgage or Non-QM
It was in 2014 when the qualified mortgage or QM rule took effect. Rules associated with qualified mortgage were set forth by federal government and meant to create safer loans through limiting or prohibiting some high risk mortgage products. Not every mortgage lender has to follow this QM rule. Once lenders don’t sell the loans to investors, for most part, they can come up with their own rules. There might be differences in the credit score requirements for the non-qualified mortgage programs, yet most lenders that offer non-QM loan products will reach credit scores that are as low as 500.
Posted by Randy Blakeslee