Most people who want to take out a mortgage don’t have pristine credit histories and high credit scores. If you have missed some payments or had other problems in the past, you might have shaky credit and think that you can’t get a loan to buy a house. That isn’t necessarily true.
There is no widely accepted definition of a “fair” credit score, but lenders are willing to provide mortgages for borrowers with less-than-perfect credit. Since homebuyers with lower credit scores are more likely to default, loans for borrowers with shaky credit typically have higher interest rates and/or require larger down payments than mortgages that are available to buyers with good credit.
Loans to Consider If You Have Fair Credit
For borrowers with a minimum credit score of 580, the Federal Housing Administration provides mortgages with a minimum down payment of 3.5%. If you have a credit score below 580, you’ll need to put down at least 10%. You will also need a debt-to-income ratio below 43%.
Fannie Mae’s HomeReady program provides mortgages for low-income borrowers with a credit score of 620 or higher. If you qualify, you might be able to buy a house with as little as 3% down.
Freddie Mac offers a Home Possible loan with down payments as low as 3% for borrowers with less-than-perfect credit. These mortgages also have income and debt-to-income-ratio requirements.
How to Improve Your Credit Score
You might be able to get a mortgage if you have a fair credit score, but it might come with a high interest rate. Boosting your credit score before you apply for a home loan can increase your odds of getting approved and also help you qualify for a lower interest rate that could potentially save you tens of thousands of dollars over the life of the loan.
Paying your bills on time is essential. If you sometimes forget that bills are due, set up autopay so you won’t miss a payment. It’s also important to keep your credit utilization ratio, or the percentage of your credit that you’re using, as low as possible. Work on paying down your balances and not accumulating more debt.
Check your credit reports for errors. Many people discover that their reports contain information on accounts they no longer have, show balances they have paid off and sometimes even include information pertaining to different people with the same or similar names. An error can have a negative impact on your credit score and might keep you from getting a mortgage you’re qualified for. If you find any mistakes, contact the credit bureau to have them corrected.
