The first thing lenders look at when you apply for a mortgage is your credit score. It’s what tells them if you are a good risk or if you could likely default on your mortgage.
If you don’t have ‘great’ credit, you might have to look at government-backed loans, such as FHA or VA loans. But some borrowers don’t even qualify for those loans, leaving them with very few options.
The good news is that you don’t have to keep renting if you don’t have perfect credit, low credit score loans may be an option.
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What are Low Credit Score Loans?
Low credit score loans are for borrowers that don’t qualify for traditional financing. FHA loans allow credit scores as low as 580. If you can’t meet those credit score requirements, you’ll likely need a loan for someone with bad credit.
Here’s the good news.
They aren’t any different than most other loans you could get. You just have to work with a private lender who keeps the loans on its books rather than trying to sell the mortgage on the secondary market to Fannie Mae or Freddie Mac.
How to Qualify for Low Credit Score Loans
Since you know your credit score isn’t the reason you’re qualifying for the loan, what do lenders look for when you apply for a low credit score loan?
Lenders look at the big picture. We want to know that you can make your payments and aren’t a high risk of default.
At Save Financial we understand that your credit score is a snapshot of a moment in time. It doesn’t mean you are a ‘bad borrower’ or that you will default on your loan. A low credit score means you had some trouble at one point, but there’s a good chance you recovered.
Here’s how to prove it:
- Little to no debts
Try keeping your debts down as low as possible. The fewer consumer debts you have (credit cards, personal loans, etc.) the easier it is to get approved.
- Large down payment
The more money you invest in the home, the easier it is for lenders to approve you. Aim for a 10 – 20% down payment for the best results.
- Stable employment
Don’t change jobs before you apply for a mortgage (or during the process). Try keeping the same job for 2+ years. This shows lenders reliability and consistency, both of which are good for your application.
Final Thoughts
Low credit score loans can be a great way to get financed when you don’t want to wait to buy a home. At Save Financial, we offer a large selection of loans that works for borrowers with less than perfect credit.
We know you are more than a credit score and we consider more than just your credit when you apply for a mortgage. The home’s collateral, your down payment, and your debt-to-income ratio are the key factors we look at when you apply for a loan with a low credit score. Provide compensating factors and you’re more likely to get approved!
