Most people who want to take out a mortgage don’t have a clean credit history or high credit scores. If you’ve missed some payments or had other problems in the past, you might have poor credit and think you can’t get a loan to buy a house. This is not necessarily true.
There is no widely accepted definition of a “fair” credit score, but lenders are willing to provide mortgages to borrowers with less than perfect credit. Since homebuyers with lower credit scores are more likely to default, loans for borrowers with weak credit generally have higher interest rates and/or require larger down payments than loans mortgages that are available to buyers with good credit.
Loans to consider if you have fair credit
For borrowers with a minimum credit score of 580, the Federal Housing Administration offers mortgages with a minimum down payment of 3.5%. If you have a credit score below 580, you will need to deposit at least 10%. You will also need a debt ratio below 43%.
Fannie Mae’s HomeReady program offers mortgages to low-income borrowers with a credit score of 620 or higher. If you qualify, you may be able to buy a home with as little as 3% down.
Freddie Mac offers a Home Possible Loan with down payments as low as 3% for borrowers with less than perfect credit. These mortgages also come with income and debt-to-equity requirements.
How to improve your credit score
You might be able to get a mortgage if you have good credit, but it might come with a high interest rate. Raising your credit score before applying for a home loan can increase your chances of being approved and also help you qualify for a lower interest rate that could potentially save you tens of thousands of dollars over the life of the loan. ready.
Paying your bills on time is essential. If you sometimes forget that bills are due, set up automatic payment so you don’t miss a payment. It’s also important to keep your credit utilization ratio, or the percentage of your credit you use, as low as possible. Work on paying off your balances and not accumulating more debt.
Check your credit reports for errors. Many people find that their reports contain information about accounts they no longer have, show balances they have paid, and sometimes even include information about different people with the same or similar names. A mistake can have a negative impact on your credit score and can prevent you from obtaining a mortgage for which you qualify. If you find any errors, contact the credit bureau to have them corrected.