How to Get Approved for a Home Loan With a Low Credit Score

How to Get Approved for a Home Loan With a Low Credit Score

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How to Get Approved for a Home Loan With a Low Credit Score

1Get your credit report from Annual Credit Report (see Resources). Annual Credit Report offers free credit reports under the terms of the Fair Credit Reporting Act. Order your credit score separately, for a fee, by following instructions included on the credit report.

2Compare your credit score to minimum and suggested standards for home loan approval. Credit scores range from 300 to 850, according to Privacy Rights Clearinghouse. The Washington Post reported in 2010 that mortgage loans insured by the Federal Home Administration were available to borrowers with credit scores of at least 500. However, non-FHA loans generally require a credit score of at least 620, with the best interest rates available for borrowers with scores of 720 or higher. Postpone plans to buy a house if your credit score is below 500. Work on improving your credit instead.

3Review your credit report for problems. Late payments on current accounts and old debts still listed with debt collection agencies could prevent you from being approved for a mortgage. Make payments to bring all accounts current and to resolve old debts.

4Save as much money as possible for a down payment. The Post reports that FHA loans are available with down payments of just 10 percent, but a larger down payment may qualify you for a better interest rate.

5Contact a nonprofit housing counselor approved by the U.S. Department of Housing and Urban Development. Find a counselor in your area by visiting the website (see Resources). Meet with the counselor and explain that you are interested in buying a house and have a poor credit score. Ask the counselor for a list of local lenders that offer mortgages through FHA or are otherwise comfortable lending to borrowers with poor credit scores.

6Call several lenders about rates. Tell the lender about your financial situation, including your monthly debt, income, credit score and available down payment. Compare the lenders and apply for the best deal.

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