If you’re dreaming of home ownership but wondering whether you can get a mortgage with a 600 credit score, you’re not alone. While many traditional lenders look for a credit score of at least 620, you can get a home with a 600 credit score. You might not get the best interest rate, but you can still secure a mortgage. Continue reading to learn how you can buy a house with a 600 credit score and some of the best tips to improve your credit score this year.
Table of contents
- How Your Credit Score Impacts Home-Buying Options
- Factors that Affect Home Buying with a 600 Credit Score
- 1. Debt-to-Income Ratio
- 2. Employment History
- 3. Size of Down Payment
- Home-Buying Strategies for People with a 600 Credit Score
- Building a Credit Score Before Applying for a Mortgage
- Getting Preapproved for a Mortgage with a 600 Credit Score
- Work with a Mortgage Lender That Offers Low-Credit Mortgages
- 4 Tips for Improving Your Credit Score Before Obtaining a Mortgage
- 1. Check For Errors on Your Credit Report
- 2. Pay Bills On Time
- 3. Work Toward Paying Down Existing Debts
- 4. Limit New Credit Applications
- Risks of Homebuying with a 600 Credit Score
- Higher Interest Rates
- Fewer Loan Options
- Potential for Default and Foreclosure
- Buying a House With a 600 Credit Score
- Frequently Asked Questions
How Your Credit Score Impacts Home-Buying Options
Your credit score is one of the most important factors lenders look at in the mortgage approval process. A credit score represents the statistical likelihood that you’ll default on a loan or make on-time mortgage payments. A good credit score makes the homebuying process easier. You’ll get approved for a mortgage more easily and may qualify for a lower interest rate.
All consumers have the right to free credit reports. You can check your credit score at https://www.annualcreditreport.com and get a free credit report from all three credit reporting companies: Experian, Equifax and TransUnion. Many credit cards and bank accounts also offer free credit tracking to check your credit report more often.
Factors that Affect Home Buying with a 600 Credit Score
Aside from your credit score, lenders will look at these factors to determine loan eligibility, whether you’re buying a house with a 600 credit score or an 800 credit score.
1. Debt-to-Income Ratio
Debt-to-income ratio is the ratio of total debts — including student loans, credit card debt, car payments, medical debt and rent or mortgage payments — with total income. For example, if your total debt is $3,000 per month, and your income is $7,500 monthly, your debt-to-income ratio would be 40%. Lenders look for a debt-to-income ratio below 43% for mortgage approval. Having a lower debt-to-income ratio can improve your mortgage approval rate.
2. Employment History
Mortgage lenders generally want to see at least two years of employment history. If you’ve got a stable employment history, it can improve your mortgage case when buying a house with 600 credit score. If you’re self-employed or have had an unstable employment history, you may be asked to show bank account statements or other proof of income.
3. Size of Down Payment
If you can make a large down payment, lenders are more likely to approve a mortgage with a 600 credit score. A large down payment means you have more equity in the house from purchase, increasing your risk if you don’t make on-time payments and reducing risk to lenders.
Home-Buying Strategies for People with a 600 Credit Score
Consider the following home-buying strategies to increase your chances of getting a home loan with favorable terms and lower interest rates if you have a 600 credit score.
Building a Credit Score Before Applying for a Mortgage
Building your credit score before applying for a mortgage will increase your chances of approval. To quickly build your credit score:
- Pay off debt (as much as possible).
- Make on-time payments on all debts.
- Ask for a credit line increase on credit cards to decrease your percentage of credit used.
- Get credit for past on-time utility and rent payments through a rent reporting company.
- Become an authorized user on the credit card of a friend or family member with a high credit score.
- Focus on paying off debt and making on-time payments over time.
Getting Preapproved for a Mortgage with a 600 Credit Score
You can apply to get preapproved for a mortgage with a 600 credit score. While traditional lenders expect a credit score of at least 620, some will approve you for a nonqualified loan or a traditional loan with a higher interest rate. Learn more about how to get preapproved for a mortgage here.
You can also apply for a Federal Housing Administration (FHA) loan, which only requires a 580 credit score. That means you can get an FHA loan with a 600 credit score. If you’re a veteran or qualified service member or spouse, you can also apply for a Veterans Affairs (VA) loan, which requires a credit score of at least 580.
Work with a Mortgage Lender That Offers Low-Credit Mortgages
Some lenders specialize in low-credit mortgages. A 600 credit score mortgage lender sometimes offers nonqualified mortgages that Freddie Mac or Fannie Mae don’t back. Others offer traditional mortgages but with higher interest rates.
Despite the disadvantages, 600 credit score mortgage lenders provide a viable solution to secure a mortgage and purchase a home. As you increase your credit score and build home equity. You can always apply for a mortgage refinance at a lower interest rate after you’ve built your credit score.
4 Tips for Improving Your Credit Score Before Obtaining a Mortgage
Ready to build credit fast? Here are the main steps to take.
1. Check For Errors on Your Credit Report
If there are errors on your credit report, including unpaid bills wrongly attributed to you, you have the right to dispute these errors. Check your name, Social Security number and all debts and credits, and file a complaint with the credit bureau. The Consumer Financial Protection Bureau also has template letters and instructions to remove incorrect information from your credit report.
2. Pay Bills On Time
On-time payments make up 35% of your credit score. Late payments can stay on your credit report for up to seven years. Start making on-time payments now, and see your credit score rise over time. To avoid missing a payment, you can also set up automatic bank payments for the minimum owed on credit card accounts, utility bills and other monthly expenses.
3. Work Toward Paying Down Existing Debts
The total amount owed makes up 30% of your credit score. Work to pay off existing debt as quickly as possible. Consider paying off cards with the highest interest rate first, so more of your monthly payments go to past debts each month.
4. Limit New Credit Applications
New credit applications make up 10% of your credit score. Each time you apply for a credit card, there might be a temporary dip in your credit score. In general, a couple of new credit applications per year won’t hurt your credit score if you use credit responsibly.
While you’re preparing to apply for a mortgage, limit new credit applications for at least six months to a year to increase your credit score as much as possible.
Risks of Homebuying with a 600 Credit Score
Buying a home with a 600 credit score isn’t without risks. Here are the key factors to weigh in your decision.
Higher Interest Rates
Lenders calculate interest rates based on credit scores. The higher the credit score, the lower the interest rates. Because a 600 credit score is considered low, you could face interest rates of 7.5% or higher. Over the loan’s lifetime, you could spend more than $100,000 in additional interest payments.
Fewer Loan Options
Not all lenders are willing to loan to clients with a 600 credit score. For that reason, you’ll have fewer preapproval options to choose from. This gives you less negotiating room and can force you to accept a lower loan amount with higher interest rates or additional fees.
Potential for Default and Foreclosure
Taking on a mortgage has the potential for default and foreclosure. A 600 credit score indicates that you’ve had difficulties paying bills in the past. For some people, this could be because of medical or other major, unexpected expenses. Consider your financial situation, job security, insurance and savings to ensure that you don’t risk late payments or foreclosure, even with an unexpected life event.
Buying a House With a 600 Credit Score
You can get a mortgage with a 600 credit score, but it might not have good terms. Work to build your credit score before applying for a mortgage, and continue to build your credit score to refinance later with better loan terms. Learn more about building savings and paying off debt to take steps to create a better credit score and financial opportunities in the future.
Frequently Asked Questions
Is it possible to get approved for a mortgage with a 600 credit score?
Yes, it is possible to get approved for a mortgage with a credit score of 600 or lower, but it may be more difficult and come with higher interest rates and fees.
What is the minimum credit score needed to buy a house?
While there is no set minimum credit score requirement to buy a house, generally, a credit score of at least 620 is recommended to secure a mortgage with favorable terms.
How can I improve my credit score before applying for a mortgage?
You can improve your credit score by paying down debts, making timely payments, keeping credit utilization low and disputing errors on your credit report.