How to Get a Mortgage with a 600 Credit Score


Mortgage loans no longer require perfect credit to be eligible.

Today, there are mortgage programs for home buyers with credit issues.

This article takes a look at which types of mortgage programs you can get with a 600 credit score and how you can raise your score to increase your odds of being approved.

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Requirements by Mortgage Type

Home Loans You can Get with a 600 Credit Score

FHA Loans

FHA loans are a type of government-backed home loan guaranteed by the Federal Housing Administration. They have the lowest credit score requirement of any type of mortgage. To be eligible you need a 580 credit score with a 10% down payment or a 500-579 score with 10% down. A mortgage insurance premium (MIP) is required along with an upfront MIP fee of 1.75% of the loan amount.

FHA Loan Requirements

  • 580 credit score with 3.5% down
  • 500-579 score with 10% down
  • Maximum 50% debt-to-income ratio (DTI)
  • For primary residence only
  • 24 month waiting period after a foreclosure or bankruptcy
  • 1% of student loan debt added to DTI ratio

 

VA Loans

VA loans are guaranteed by the Department of Veterans Affairs and offer 100% financing and no mortgage insurance is required. They require a minimum credit score of 580 and allow up to a 50% debt-to-income ratio.

VA Loan Requirements

  • 580-620 minimum credit score
  • 50% maximum debt-to-income ratio
  • Past 2 years of tax returns and W2’s
  • 24 month waiting period after a bankruptcy or foreclosure
  • For primary residence only

 

Mortgages that Require a 620 Credit Score

If you have a credit score of 600, you can qualify for an FHA or VA loan. However, if you’re able to increase your score by 20 points, you will open up more home loan programs. We will dive into how you can increase your credit score quickly later on in this article.

Home Possible and HomeReady Loans

Freddie Mac and Fannie Mae created the Home Possible and HomeReady loan programs for low-income first-time homebuyers. To be eligible for either program your income must be below 100% of the area median income (AMI), have a 620 credit score, and a 3% down payment.

  • 620 credit score
  • 3% down payment
  • Income below 115% of AMI

 

USDA Loans

A USDA loan is a no down payment home loan that is guaranteed by the U.S. Department of Agriculture and is for low-to-median income homebuyers looking to buy a home in a rural area. To be eligible for a USDA mortgage you need a 620 credit score and your income cannot exceed 115% of the area median income (AMI).

  • 620 credit score
  • 100% financing
  • Income below 115% of AMI
  • 1.0% upfront mortgage insurance premium (MIP)

 

Conventional Loans

A conventional loan is a mortgage that is insured by private mortgage insurance companies, not by the government. They require a 620 credit score with a 5% to 20% down payment. Private mortgage insurance (PMI) is not required if you have at least 20% down.

  • Minimum 620 credit score
  • 5%-20% down payment
  • 43% maximum DTI ratio

 

Credit Requirements

Lenders look at more than just your FICO score. They will take an in-depth look into your entire credit history, including your payment history. If a borrower has several late payments in the past 12 months but has a 620 credit score, they are actually in a worse position to qualify than a borrower with a 600 credit score and no late payments in the past year.

No Credit History – If you have no credit history, lenders may ask for alternative credit lines, such as rent and phone payments, to establish payment history.

Bankruptcy – Bankruptcy will not disqualify you from a home loan. You can usually get a mortgage after bankruptcy after a 24-48 month waiting period, 12 months if you have extenuating circumstances.

Collections, Judgements, and Federal Debt – Lenders may verify that judgments and Federal debt have been paid or on an agreed-upon payment plan. Collections will not disqualify you. If your total collection debt is over $2,000, your lender may require you to make payment arrangements before closing.

Bankruptcy Waiting Period

If you have filed for bankruptcy or foreclosure, you will need to wait before being eligible for another mortgage loan.

Compensating Factors

Compensating factors are other parts of your mortgage application that help to make up for having bad credit.

  • A large down payment
  • Limited payment shock
  • 5+ years with the same employer or in the same industry
  • Low debt-to-income ratio
  • Large amount in savings
  • Residual Income
  • Limited debt (credit cards, auto loan, etc.)

 

Improve Your Credit Before Applying for a Loan

If you have less than perfect credit, then you should do whatever you can to improve your score before applying for a home loan.

  • Pay down credit card debt – Your credit utilization ratio is the amount of available credit you’re using; it accounts for 30% of your overall FICO score. Try to pay your balances to less than 10-15% of the card’s limit.
  • Don’t apply for credit – Do not apply for new lines of credit or loans. Too many credit inquiries can lower your credit score. You’re also adding debt to your report, which can negatively affect your score.
  • Pay your bills on time – Your payment history accounts for 35% of your overall score. But when you’re going to be applying for a mortgage soon. Don’t miss a payment on any bills. Set up auto-pay with all your bills to ensure you don’t have any late payments.

 

Frequently Asked Questions

Can I get a mortgage with a 600 credit score?

Yes. FHA loans are available to borrowers with a credit score of 580 or higher. If you have a 600 credit score, you should be in an excellent position to qualify.

How much money do I need to put down with bad credit?

The lowest credit score accepted by FHA is 500, with a 10% down payment. However, lenders set their credit requirements, and many lenders will not approve borrowers with a score below 600.

Will I have a higher interest rate if I have a 600 credit score?

Yes. Your credit score will largely determine the mortgage rate on your loan. The lower your credit score, the higher the interest rate will be. Work on improving your credit score

The Bottom Line

Getting a mortgage with a 600 credit score is not easy, but it is possible. FHA and VA loans are the two types of home loans that require a 580 credit score.

Work on improving your scores before you apply for a mortgage.

Making sure your credit profile is clean with no late payments or collections in the past year. This will significantly improve your chances of being approved.

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