Source: The Ascent —
Your credit score is a major cornerstone of your personal finances, and sometimes it feels as if that three-digit number plays a role in just about every money move you want to make. Getting a mortgage loan is no exception, and if your credit has seen better days, you may think you’ll never be able to qualify for one.
While it’s always a good move to take the time to improve your credit (such as by paying down high-interest debt and going through your credit report to find errors you can have removed) before trying to buy a home, you may not have the time to do so. If your housing situation has deteriorated or you need to move quickly in the homeownership process, keep reading to learn how you might be able to get approved for a mortgage loan, even without a good credit score.
1. Consider an FHA (or other government-backed) loan
Mortgage loans backed by the Federal Housing Administration (FHA) are how many Americans get on the property ladder. FHA loans are easier to qualify for based on having a smaller down payment requirement and a lower required credit score. They’re offered by many regular mortgage lenders, with the understanding that the loan is backed by the FHA, meaning that if you default on it, the federal government will repay the lender (you will not get off scot-free in this situation, but the risk of lending to you is mitigated by this guarantee).
If you have a credit score of at least 580, you’ll be able to make a down payment of just 3.5% (if your credit score is lower than this but at least 500, you’ll need a 10% down payment). Other government-backed loans, such as those offered by the VA or USDA, may also have less stringent credit requirements than conventional mortgages, but requirements vary based on lender.
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