How It’s Like Getting a Mortgage with 500 Credit Scores in Houston

When it comes to purchasing a house, a flawless credit score is not a necessity. Every borrower’s FICO or credit score remains between 300 and 850. If the score is falling behind and near 300, you have extremely bad credit. If the score is facing upward and near 850, you have an excellent credit score. Lenders, however, reject applications on the basis of poor credit. This means borrowers with bad credit are unlikely to pay down the mortgage and are highly likely to default. Therefore, poor credit range brings unfavorable terms and rates.

So, how much credit is enough to finance your dream home? Credit score drives the home-buying process, at the initial stage. Looking at the score, lenders can offer a quote on the loan rate and term. The FICO score determines whether you are able to qualify for the mortgage in the first place. So, the impact of the score is pretty crucial on your prospects of buying a home.

You can, however, find a home loan with the credit score you have. But what if you have an average credit score of 500? Let’s find out whether the average credit score range makes you eligible for the next step.

FHA Loans Allow a Credit Score of 500

If your credit score is in the range of 500s, you should get a mortgage backed by the Federal Housing Administration. The mortgage provides small down payments, so you can put down 3.5%. But this only happens when your credit score is 580 and above. FHA mortgages, also known as 500 credit score home loans in Houston, allow a 10% down payment. In this case, you need to have a FICO score between 500 and 579.

Considering the credit score requirement, it seems way more affordable than conventional loans. The conforming loans tend to ask for at least 620 credit scores and a 20% down payment. Though a borrower with a credit score of 500 is likely to have judgments and outstanding balances, FHA loans have lenient requirements.

On the Way to Improving Score

FHA loans might give a green signal to average credit scores but good scores are always better. For improving the FICO score, you should take up a debt-management plan. If paying bills on time seems troublesome, you should consider this plan. This can solve your problem of low credit scores and further save you from bankruptcy.

Besides this, maintaining a high credit utilization rate is a plus. You can create a credit mix because the FICO model is favorable toward people with a blend of different mortgages. If you have home-equity loans and credit cards in the report, things are definitely going to look up.

The Bottom Line

Increasing your credit score is a great starting point. You can gain access to reduced fees, low-interest rates, and many other credit options. It is important to keep an eye on the progress so that you can apply at the right time. So, start working on your credit score today!

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