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If you want to get a mortgage but your credit score needs work, you might think homeownership is out of reach. But you don’t need perfect credit to get a home loan. It’s possible to get a mortgage with a 600 credit score.
Check out some of the home loan programs with flexible credit requirements — and how you can improve your credit score to get better terms:
Can I buy a house with a 600 credit score?
A 600 credit score is high enough to get a home loan. In fact, there are several mortgage programs designed specifically to help people with lower credit scores. However, you’ll need to meet other lending requirements too. For instance, the lender will check your debt-to-income ratio (DTI), verify employment, and go over your credit history. You might have to make a down payment as well.
A lower credit score also means you’ll have higher borrowing costs because there’s more risk for the lender. These costs usually come in the form of mortgage insurance premiums and higher interest rates.
Mortgage loans for a 600 credit score
If you’re looking for a home loan with a 600 credit score, check out these programs:
FHA home loan
FHA home loans are mortgages insured by the Federal Housing Administration. The government backing removes some of the risk for lenders, so people with lower credit scores and smaller down payments may qualify.
If you have a credit score of 580 or more, you’ll only need to put down 3.5% of the home’s purchase price, while a score of 500 to 579 requires at least 10% down.
You’ll have to pay two types of mortgage insurance with an FHA loan as well: an upfront premium and an ongoing fee — known as an annual mortgage insurance premium — that’s baked into your monthly payment. Depending on how big of a down payment you make, you’ll have to pay these mortgage insurance premiums for either 11 years or the life of the loan.
VA home loan
Backed by the U.S. Department of Veterans Affairs, VA loans are geared toward veterans, service members, and surviving spouses. You’ll pay no money down and no mortgage insurance, though you’ll be required to pay an upfront funding fee between 1.4% and 3.6% of the loan amount.
There’s no minimum credit score requirement for VA loans. The lender sets its own minimum, which means it’s possible to get this type of loan with a 600 credit score.
USDA home loan
USDA home loans are no-money-down mortgages guaranteed by the U.S. Department of Agriculture. To get one, you’ll need to meet income requirements and buy a home in a USDA-designated rural area. Borrowers are also responsible for paying mortgage insurance in the form of an upfront guarantee fee and an annual fee.
Like VA loans, every lender sets its own credit score requirements. So it’s possible to get a USDA-backed mortgage with a 600 credit score, as long as you find a lender willing to work with you.
A non-qualified mortgage loan, also known as a non-QM loan, is a home loan that doesn’t satisfy the requirements to be a Qualified Mortgage. Non-QM loans are ideal for borrowers with fluctuating incomes — such as self-employed workers — and people who can’t meet stringent conventional loan requirements.
Non-qualified mortgages are usually offered by banks that set up and service their own unique mortgage programs, such as interest-only home loans. You can shop around for lenders that offer these loans or work with a mortgage broker who can make recommendations.
How to improve your credit score
If you can pause your mortgage search for a few months and work on improving your credit, you may be able to qualify for conventional financing. Or you might get better loan terms that help you save money.
Here are some ways to boost your credit score:
Make on-time payments
Payment history is one of the most important factors that influences your credit scores, so focus on paying all of your bills on time. To avoid missed or late payments, set up automatic payments or schedule a reminder on your phone a few days before the bill is due. Make sure you have money in your checking account before the payment is processed too.
Pay down debt
Paying down outstanding balances lowers your credit utilization ratio, which is the amount of credit you’re using compared to your available credit. A lower credit utilization signals less risk for a lender. In turn, it can help improve your credit scores.
There’s another bonus to paying down your credit card debt: It improves your debt-to-income ratio, which measures how much of your monthly income goes toward debt payments. With a higher credit score and lower DTI ratio, you improve your chances of qualifying for a home loan.
Don’t close credit card accounts
Credit scores are also based on the length of your credit history, so the simple act of keeping credit card accounts open can help keep your credit healthy.
You might have been tempted to close an account if you don’t use it much or it comes with a high annual fee. But you can keep the account active by connecting the card to a small recurring bill and setting up payment reminders.
Limit new credit applications
Every time you apply for new credit, whether it’s for a credit card or loan, the lender reports a hard inquiry to the credit bureaus. Plus, the new account can bring down the average age of your credit history and increase your outstanding debt. All of these factors can bring down your credit score, so always keep this in mind before opening a new account.
Get a credit-builder loan
A credit-builder loan is designed to help you build credit as you make payments. They’re typically available at smaller financial institutions, such as community banks and credit unions.
If you qualify, you don’t get the money upfront. Instead, the lender holds it in a savings account and collects payments from you (with interest) throughout the loan term. You get the money once the loan is paid off, usually within six to 24 months.
Become an authorized user
With this option, a trustworthy friend or relative adds you to their credit card account. You get your own copy of the credit card and can make purchases with it, but you’re not required to make payments. The account activity will be reflected on your credit reports along with the primary account holder’s.
An account in good standing will positively impact your credit, but the opposite is true too. Any late payments or high balances may negatively affect your credit.
Regularly check your credit reports
Your credit scores are based on the information in your credit reports, so it’s a good idea to make sure they don’t contain mistakes. You’re entitled to a free credit report with TransUnion, Equifax, and Experian once a year at AnnualCreditReport.com. If you find an error or signs of identity theft during your review, you can resolve it with the credit bureau.