The home-buying process may be difficult for anybody, but it can seem downright overwhelming if you’re scared that your credit score will prevent you from getting a loan. It’s encouraging to know that certain lenders will still give you a shot even if your credit score is less than stellar (usually around the 580 range).
Badbola has compiled a list of such lenders, all of which will accept applicants with credit scores below the normal 620 criterion, and has rated each lender based on the loan products they provide, the quality of their customer service, and the size of the down payment they ask (see our methodology below.)
Whether you’re a first-time buyer or an investor, it’s crucial that you take the time to choose the best mortgage lender for your specific situation.
Be aware that a poor credit score may still get you a mortgage, but it will almost certainly come with an interest rate closer to the upper end of the lender’s range.
Rocket Mortgage – Best For Flexible Terms
The term Rocket Mortgage is now familiar to most people in the United States since it is one of the largest mortgage lenders in the country. Even though the majority of mortgage lenders require applicants to have a credit score of at least 620, Rocket Mortgage will work with candidates who have credit ratings as low as 580.
Before applying for a loan, prospective borrowers may take advantage of a free service offered by the lender called Fresh Start, which is designed to assist them improve their credit score. Be mindful of the fact that if you apply for a mortgage with a credit score that is lower than average, the lender may charge you interest rates that are closer to the upper end of the APR range.
Rocket Mortgage provides conventional loans, FHA loans, VA loans, and jumbo loans; but, they do not provide USDA loans; hence, this lender is not the most attractive choice for prospective homebuyers who want to make a purchase with zero money put down on it. If you only intend to buy a single-family home, a second home, or a condo that is already on the market, this shouldn’t be a major setback for you because Rocket Mortgage does not offer construction loans (which are necessary if you want to build a brand new custom home) or home equity lines of credit (also known as HELOCs).
Navy Federal Credit Union – Best for a VA loan
Active and retired members of the United States Armed Forces who join Navy Federal Credit Union are eligible for all of the credit union’s services (immediate family members are also eligible). If you have a lower-than-average credit score but are still looking for a mortgage, Navy Federal Credit Union may be a better option because of the personal attention it gives each member. This lender does not provide its minimum credit score requirement, but it does help its members get the mortgage that best suits their needs.
When purchasing a home via the RealtyPlus program, purchasers may get a cash rebate of up to $9,000. It is not necessary to get private mortgage insurance, or PMI, when obtaining a mortgage from this particular provider even with a low down payment.
Customers may acquire VA loans from Navy Federal Credit Union with no down payment and a donation of up to 4% of the home’s worth toward closing costs, both of which are unique among lenders. The Military Choice mortgage is another alternative; its terms are similar to those of the VA loan (no private mortgage insurance, no minimum down payment), but it also allows sellers to pay up to six percent of the home’s worth in closing expenses.
Citi Mortgage – Best For No PMI
Borrowers can put as little as a 3% down on a home with Citi’s HomeRun mortgage program and avoid having to pay private mortgage insurance (PMI). PMI is an expensive monthly fee that is required by the majority of other mortgage programs for borrowers who put down less than 20% of the purchase price. Both the purchase of a home and the refinancing of an existing mortgage may be funded via the utilization of this scheme.
You may avoid the possibility of having to make larger interest payments in the future if you acquire a mortgage from HomeRun since the interest rate you get may be set for the whole duration of the loan. Borrowers who participate in this mortgage program and have a credit score of 680 or above have the potential to qualify for a loan amount of $647,200 ($970,800 in Hawaii and Alaska).
The interest rates on Citi’s various other mortgage loans, which are not a part of the HomeRun program, are now lowered.
Frequently Asked Questions
1. What Is Pre-Approval And How Does It Work?
A pre-approval is a statement or letter from a lender that specifies how much money you may borrow to buy a house and what your potential interest rate would be. This statement or letter can come in the form of either an oral conversation or a written document. You will most likely be required to supply bank statements, pay stubs, tax forms, and job verification, among other things. Once you have been pre-approved for a mortgage, you will get a letter of pre-approval that you may use to begin touring properties and putting bids on them. It is in your best interest to be pre-approved for a mortgage right at the beginning of the home-buying process, before you even start looking at houses.
2. How Do Mortgages Work?
A loan that is taken out particularly for the purpose of purchasing a home is known as a mortgage. It is an agreement between you and a lender that enables you to purchase a home without having to make the whole purchase price at the time of the purchase. Instead, you put down a smaller amount (often between 3 and 20 percent of the price of the property) and make consistent monthly payments over a longer period of time, in addition to interest charges.
If you were going to purchase a home, for example, you probably wouldn’t want to pay the whole $400,000 up front, but you could be willing to make an initial payment of $30,000. You could make a single down payment of $30,000 and borrow the remaining $370,000 via a mortgage. This would give you a total cost of $410,000. After that, you would negotiate with the lender a plan to repay the initial cash, together with interest, over a period of time ranging from 15 to 30 years.
It is important to keep in mind that if you make a down payment that is less than 20% of the total cost of the home, you will be required to pay private mortgage insurance (PMI) in addition to your normal mortgage payments. Thankfully, if you have attained 20% equity in your home and have paid off your mortgage for a certain amount of years, you may typically request that this insurance be cancelled for you.
3. How Is My Mortgage Rate Decided?
The interest rates charged on mortgages are subject to practically constant fluctuation and may be sensitive to market pressures such as inflation and the state of the economy as a whole. Although the Federal Reserve is not responsible for determining mortgage rates, those rates have a tendency to change in response to measures made by the Federal Reserve on its interest rates.
Even though market dynamics may have an effect on the overall range of mortgage rates, the actual rate you are offered will be determined by factors such as your location, credit report, and credit score. If you have a higher credit score, you will have a better chance of being approved for a mortgage with a more favorable interest rate.