Getting a mortgage with a credit score of 550 can be challenging, but it is possible. The Federal Housing Administration (FHA) offers loans backed by the government that are available to borrowers with a credit score of 500 or higher. This means that if your score is 550, you can apply for an FHA loan that requires only a 10% down payment on the purchase price of the home. However, most home loan options require some kind of down payment.
For example, an FHA loan may only require a 3.5% down payment, but you will still need to have some money saved up. In addition, you will need to have cash available for closing costs and to fund your escrow account. The more money you have in hand, the better. Anything you don't use at the closing table can be used for home improvement and decoration. Mortgage lenders often advertise the best interest rates for borrowers with a credit score of 740 or higher.
But there is one type of home loan that does not have any minimum credit rating requirements. To motivate you to keep working on your credit, here are some of the other popular types of mortgages available on the market:
- Conventional loans
- VA loans
- USDA loans
- Jumbo loans
Banks and mortgage companies that offer FHA loans are not required to follow FHA guidelines exactly. The minimum credit score required to qualify for an FHA loan is 500, provided that you have the ability to make a 10% down payment. Depending on your mortgage details, having a lower interest rate could result in savings of thousands of dollars. VA loans are insured by the Department of Veterans Affairs and this government guarantee makes lenders more willing to offer better rates. Even if you have poor credit, obtaining a mortgage or refinancing may still be more attractive than continuing to pay rent. Lenders generally want to see that their total monthly debts, including estimated new mortgage payments, don't exceed 36% of their monthly gross income.