A critical factor that influences a person’s eligibility for a mortgage is their credit score. But what if you have a low credit score? Are you not going to qualify for a loan? This is a widespread concern among homebuyers with low credit scores. However, it’s also a tough question to answer because every loan scenario is unique. Here’s an overview of how your credit score affects your home loan application.
Why Your Credit Score Matters
There are a few things that lenders examine to assess your eligibility for a loan and what interest rate you can get.
Your income, recurring debts, and assets all impact your ability to get approved for a loan, but so does your credit score. Lenders use credit scores to get an idea of how responsible you are with your finances.
A high score usually means you’ve been on time with your payments, while a lower score typically means that there are late or missed payments. If that’s your situation, your ability to secure a loan may be at risk. That said, it may still be possible to get a mortgage with low credit.
Getting a Home Loan With Low Credit
Credit scores are just one element of the mortgage qualification process. Lenders look at these to determine your reliability with a loan. There is no specific threshold for all situations when it comes to credit scores. The type of loan you’re using, your debt-to-income ratio, among other factors, will determine this. In general, lenders prefer scores of 600 or higher to approve you for a home loan.
Other Factors That Affect Mortgage Approval
Lenders don’t only look at your credit scores when assessing your ability to qualify for a loan. Other factors include your debt-to-income (DTI) ratio, your down payment amount, how much you have saved up, etc.
If you are strong in some of these other areas, it’s possible they could compensate for bad credit. For example, a borrower with a less than decent credit score might still be eligible for a home loan if they have lots of savings and a sizeable down payment. Most lenders focus on the big picture, with your credit being only one aspect of that.
Lastly, the type of home loan you’re using matters. For example, FHA loans are typically more lenient when it comes to lower credit scores than conventional loans.
Borrowers shouldn’t assume their credit score is too low for a home loan. The only way to find out for sure is to speak with a mortgage lender, like JVM Lending.
If you would like to learn more about applying for a mortgage or to discuss your qualification in more detail, you can reach out to one of our expert Client Advisors. Our team is available 7 days a week by email at email@example.com or by phone at (855) 855-4491.
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