How to Get a Home Loan with a 580 Credit Score


If you’ve wanted to buy a new home, but your credit score is stuck at 580…

You may be in luck!

This article explores the type of home loans you can get with a 580 credit score and ways you can improve your score to improve your odds of being approved and get the lowest interest rates.

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580 Credit Score Home Loans

FHA Loans

FHA mortgage loans are a government-backed mortgage guaranteed by the Federal Housing Administration. They have the lowest credit requirement of any type of home loan. Borrowers with a 580 credit score need a 3.5% down payment. With a 500 credit score you may be eligible with 10% down, but there are few FHA lenders that work with scores below 580.

  • Minimum 580 credit score with 3.5% down (500+ score with 10% down)
  • 50% maximum debt-to-income ratio
  • 36 month waiting period after a bankruptcy

 

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VA Loans

VA loans are a 100% financing home loan that is guaranteed by the Department of Veterans Affairs. The VA does not have a credit score requirement so the minimum credit score needed will vary by lender. Most VA lenders require a 580 to 620 score to be eligible.

  • Minimum 580-620 credit score
  • Zero down payment
  • No mortgage insurance required

 

Raise Your Score by 40 Points to Open More Loan Options

Home loan options for borrowers with bad credit are scare. If you can improve your score by 40 points before applying you’ll open your options to types of home loans that require just a 620 credit score. Here are some tips to improve your credit score in 30 days.

  • Pay down credit card debt – The easiest and most common way to increase your score quickly is to pay down your credit card debt. Your credit utilization ratio is the amount of available credit you are using and it makes up 30% of your overall FICO score. The higher your credit card balances, the lower your credit score will be.
  • Check your credit report for errors – You can get a free copy of your credit report once a year from www.annualcreditreport.com. If you find any errors you can dispute them with the credit bureau, which has 30 days to verify the account with the creditor they have to remove it from your report.
  • Pay your bills on time – Your payment history is the biggest factor in determining your credit rating. Make sure you stay on top of your bills and make your payments on time. A single late payment can drastically affect your score.

 

Home Loans that Require a 620 Credit Score

These mortgage programs require a 620 credit score making it more difficult to be approved for. Borrowers with bad credit. But if you have some time before you’re going to apply for a home loan you can work on improving your credit score.

Conventional Loans

A conventional mortgage requires a 620 credit score with a 5% to 20% down payment. If you have 20% to put down you won’t need mortgage insurance. There are no income limits or restrictions of the types of homes you can finance.

  • 620 or higher credit score required
  • 5% to 20% down
  • No PMI required with a 20% down payment

 

HomeReady and Home Possible Loans

Fannie Mae and Freddie Mac created 97% loan-to-value home loans for low-income first-time homebuyers. The HomeReady and Home Possible loan programs require a 620 credit score and a 3% down payment. To be eligible your income cannot exceed 100% of the area median income (AMI).

  • Minimum 620 credit score
  • 3% down payment
  • Income below 100% of area median income

 

USDA Loans

USDA loans are guaranteed by the U.S. Department of Agriculture and offered to low-to-median income homebuyers buying a home in a qualifying rural area. To be eligible you need a 620 credit score and your income must be below 115% of the AMI.

  • 620+ credit score
  • 100% financing (no down payment)
  • Income below 115% of AMI
  • The home must be in a USDA-eligible location

 

Other Credit Items Lenders Look At

Lenders look at more than just your credit score when determining if you’re eligible. Even if you meet the credit score requirement if you have recent late payments or a bankruptcy your loan could still be denied.

  • No Credit History – If you have no credit history then mortgage lenders will ask for alternative credit lines, such as rent and phone payments to establish positive payment history.
  • Bankruptcy – A bankruptcy will not disqualify you from a mortgage. You can get a mortgage after bankruptcy after a 24 month waiting period, 12 months if you have extenuating circumstances. Borrowers must re-establish positive payment history post-bankruptcy.
  • Foreclosure – There is a 36 month waiting period after you a foreclosure. Some borrowers may qualify in 12 months with extenuating circumstances.
  • Late Payments – A single late payment will not automatically disqualify you, however, you should not have any more than one late payment on any of your accounts in the past 12 months.

 

Frequently Asked Questions

Yes. FHA loans require a minimum 580 credit score to qualify with a 3.5% down payment. VA loans are also available to borrowers with a 580 credit score.

What is the lowest credit score to buy a house?

Technically, you can buy a house with a 500 credit score and a 10% down payment using an FHA loan. However, most lenders will not work with anyone with a credit score below 580.

How can I quickly raise my credit score?

The quickest way to increase your credit score is to pay down your credit card debt. Your credit utilization ratio is the amount of available credit you’re using and it accounts for 30% of your score. Try to pay your balances to less than 25% of the card’s limit.

Where can I get a mortgage with a 580 credit score?

Getting a home loan with a 580 credit score can be a little tricky if you don’t know where to look. Credit requirements vary by lender, and many will require a 620 score. However, there are lenders in our network that work with 580+ credit scores.

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