Most people will make at one point in their lives a significant investment in housing. Anybody with a credit score of 620 or above is usually thought to be able to quickly get house financing. Still, what would happen if someone had a low credit score—say, around 550? Under this situation, could one buy a property right now?
The quick response to the question is yes, but this will also rely on other elements such as income, work status, and other elements. Still, it will be somewhat challenging and most of the time they will seek special programs or mortgages for negative credit users. Still, if one sharpens his efforts and takes the right course of action, the goal of buying a house need not be dashed.
For someone with a credit score of 550, there are several hurdles that they have to overcome
Lenders often see any credit score less than 600 as rather bad; hence, you will find it difficult to secure a loan with a credit score of 550. This low rating suggests that, during the last seven to ten years, collections accounts, foreclosures, bankruptcy, or delayed or missing payments have caused poor credit standing or bad payment records. You should therefore be cautious when applying for a loan as it makes lenders see you as a dangerous borrower.
At a 550 credit score, you will struggle to secure a normal mortgage loan if you are thinking of going conventional. Plain vanilla loans are infamous for demanding a credit score that ranges from 620 to 680. A few key challenges include: A few key challenges include:
- High costs – Lenders will seek to recover their monies in the shortest time possible hence charging a higher interest on the loans. Preferably expect it to be from 1 percent or more above the interest rates of those with a good credit score.
- Lenders also consider the debt/ income ratio - These are the ratios that define your ability to meet debts. It is risky to have too much existing debt, and this also decreases your chances.
- Need a Higher Down Payment – Most lenders will ask for a down payment if your credit score is 550, and this down payment should range between 10-20%. Some even require 25-30%.
Although the above-listed factors may complicate the process for a home buyer in some way, they should not discourage anyone from attempting to buy a home.
Advice to Follow When Purchasing a House Using 550 Credit
If your heart is set on buying a house, even with a very low 550 credit score, here are some tips that can help: If your heart is set on buying a house, even with a very low 550 credit score, here are some tips that can help:
- View Your Exact Credit Report and Credit Score The first step is to move to an actual credit bureau and get your actual credit score as well as acquire full credit reports from Experian, Equifax, and TransUnion. Check to ensure that there were no other mistakes that dragged the score down even lower. Argue with the credit bureaus and get them to change the entries in case they are wrong.
- Pay Down Debts Your credit obligations will be scrutinized, therefore, it’s important to reduce your credit card balances, car loans, student and other installment debts before applying for a loan. This can be useful to reduce your DTI ratio since lenders consider the percentage of your income used for paying debts.
- Increase Your Down Payment On paper, FHA loans can be granted with down payments in the amount of 3. 5%, but in practice, most lenders will expect at least a 10-25% down from a borrower with a credit score below 560. If you can, save more money for a better down payment than the lower one.
- Create Your Emergency Fund and Boost Credit Score If the purchase is not urgent, it will take 6-12 months to save for the purchase set a budget for outstanding debts, and ensure all the payments are made on time to improve credit. However, the positive credit trends may help. In this regard, reference can be made to the following findings of the research:
You should take some thought on different types of mortgages. Although each lender has distinct approval rules, below are several kinds of mortgages that could let applicants with 550 credit: Although each lender has unique approval rules, here are several mortgage kinds that could let consumers with 550 credit:
• FHA loans – Available to any credit score starting from 500, but with the possibility to qualify with only a manual underwrite. • VA loans – There is no minimum requirement for a score on VA loans for veterans and their families. Old tries where there has been foreclosure can usually be overlooked. • USDA loans – these are for properties situated in rural areas and often come with liberal credit and income requirements, in addition to having low or no down payment requirements. • Subprime loans – It’s specialty types of loans given to borrowers with poor credit scores, subprime mortgages charge higher interest but take higher risks on such borrowers. • Bank statement loans – Some non-conventional lenders provide loans based on the income documentation requested by the bank statements. • Hard Money Loans – the costliest and most short-term kind of loan in which a loan is provided against the property and the creditworthiness of the borrower is not important.
To summarize, it is possible to buy a house with a credit score of 550 and other circumstances when obtaining a loan. If one wants to own a home, it can be done, although it has proved to be more difficult even though it may need some special mortgage facilities. The development of time, saving for a larger down payment, or improving your credit can be granted in the end. Contact conventional as well as non-conventional lenders to enable you to consider your choices.
Call now for expert credit repair services: (888) 803-7889
Read More:
How much credit card debt does the average American carry each year?
Can I buy a house with a 608-credit score?
Can I buy a house with a 602-credit score?
Can I buy a house with a 628-credit score?
Do banks offer credit monitoring services?
