If you’ve seen interest rates these days, you know they are extremely low. But what if you want to buy a house with a 600 credit score? Is it possible? With some homework, yes, you can do it!
Learn more below about how to get in your own home with a bad credit score, and check out some of the non-bank loans you can get that can help make your homeownership dream a reality.
How To Qualify For A Loan With A 600 Credit Score
Most people may not think you can get approved for a home loan at a 600 FICO score. But there are several home loan programs available that can help you. However, you still need to meet specific standards, and not everyone will qualify:
- Mortgage lenders need to prove your income: After the market crash of 2008, lenders must collect financial documents from you to show that you have the income to pay your home loan.
- You usually need to have a job for two years in a row to qualify for the loan. Some lenders may allow you to have two years of work at similar jobs, however.
- Steady payment history. You may have a 600 credit score, but you need to show that you have been making regular payments for the last year.
- Your current debt cannot be sky-high: To qualify for your loan, your total debts generally shouldn’t be more than 45% of your gross monthly income.
If you meet these standards, getting a loan with a 600 score is possible; you only need to select the correct type of loan.
Home Loans That Allow 600 Credit Scores
Several types of mortgages may approve you with a 600 credit score:
- FHA: The Federal Housing Administration backs these loans against default, so lenders are more willing to extend credit to people with a 600 credit score or even lower. If your score is under 580, a 10% down payment is needed. Above that, you only need a 3.5% down payment.
- VA: Loans backed by the Veteran’s Administration don’t require a minimum credit score, so you may get approved with a 600. Each lender establishes its own criteria, with most approving borrowers between 580 and 660. If you’re an eligible veteran or active service member, you may get a VA loan with 100% financing.
- Non-qualified loan: These loans are for borrowers who don’t usually qualify for a conventional loan but still have a reliable income. Financial companies may offer Non-QM home loans with the capital to set up and handle unique loan programs.
- Conventional loan: Some borrowers with a 600 to 620 credit score may qualify, but you likely will pay a higher rate.
600 Credit Score and Interest Rates
For many home loans, a 600 credit score means a higher interest rate. However, if you get an FHA loan, the credit score doesn’t usually determine the rate. Instead, you’ll need to pay mortgage insurance that protects the lender if you default.
You may get a rate that is even a bit lower than conventional rates, but mortgage insurance often adds $100 to $200 per month on your payment.
You would pay a higher rate for a conventional loan because lenders use LLPAs or loan-level price adjustments. This is a fee-based on the risk that mortgage lenders will charge you if you have worse credit or less to put down. Most conventional lenders charge an LLPA with a higher rate.
Keep in mind that you don’t need a high credit score to buy a home, so homeownership can be a reality for millions of families with average or poor credit. Just note that you will probably pay higher borrowing costs, such as a higher rate and/or mortgage insurance.