What Low-Credit Borrowers Should Know About Fair Credit Mortgage Lenders & Their Loan Options
Securing a 620 credit score home loan might seem challenging, but prospective borrowers still have options. While a higher credit score can unlock more favorable terms, individuals with less-than-perfect credit aren’t excluded from the housing market and can still take out low credit score home loans.
This article explores FICO credit score characterization, 620 credit score home loan options, low credit score home loans, fair credit mortgage lenders, and strategies to improve credit scores. Understanding these factors can help borrowers navigate the mortgage landscape and find suitable 620 credit score home loan options.
What is A Credit Score?
A credit score is a numerical representation of an individual’s creditworthiness, indicating the likelihood of repayment and showing lenders the risk associated with extending a loan. In the United States, three major credit bureaus – Experian, Equifax, and TransUnion – compile and report credit scores.
The most widely used model, FICO, generates scores ranging from 300 to 850. To have a credit score reported, an individual must have at least one account open for six months or more and at least one account reported to a credit bureau within the past six months.
Credit scores factor in various elements, including payment history, credit utilization, length of credit history, types of credit accounts, and recent credit inquiries. For those seeking low credit score home loans, understanding these components is crucial in navigating the mortgage application process.
FICO Credit Score Categorization
FICO Credit Scores are categorized as the following:
- < 580: Poor; borrowers are viewed as a risk and these borrowers are usually categorized as low credit score home loan borrowers
- 580-669: Fair; below-average credit score, but many lenders approve loans for this score. Given the range, 620 FICO is considered a fair/low credit score.
- 670-739: Good; average/slightly above average credit; considered a good score by most lenders.
- 740-799: Very Good; above average score and shows borrower dependability.
- 800+: Exceptional; significantly above average; shows that the borrower is an incredibly low risk.
It’s important to note that everyone has multiple credit scores based on different bureaus, including Experian, Equifax, and TransUnion. When determining overall credit score, lenders will choose the middle value (not the average). In the case of marriage, the lenders will choose the lower of the two middle credit scores. Every lender has different parameters for obtaining a 620 credit score home loan.
Determinants of Credit Score
There are many factors that impact credit scores, and scores change constantly. Some examples are:
- Debt
- Paying bills
- Collections
- Using credit
- Applying for new credit
- Opening and closing accounts
Each of these aspects can alter credit score both positively and negatively. It’s important to be mindful of these in order to protect and improve your credit score.
Fair Credit Score Home Loan Options
It’s important to note that lender requirements for low credit score home loans can vary significantly. While some fair credit mortgage lenders may have more lenient criteria for a 620 credit score home loan or low credit score home loans, others might be more stringent. As a general guideline, Fannie Mae, a government-sponsored enterprise that backs many conventional mortgages, requires a minimum credit score of 620 for primary residences and 640 for rental properties. However, individual fair credit mortgage lenders may have additional requirements beyond these baseline standards for low credit score home loans.
The following are some of the 620 credit score home loan options and low credit score home loans that we provide at Defy Mortgage:
- 620+ FICO score
- 85% maximum LTV
- No maximum loan amount
- 0.75 Minimum DSCR ratio
- 3 months cash reserve
- Foreign nationals allowed
- Interest-only option available
- No income documents or tax returns required
- 620+ FICO score
- 90% maximum LTV
- $6M maximum loan amount
- 12-24 months of bank statements (personal and business accepted)
- Interest-only option available
- 620+ FICO score
- 85% maximum LTV
- $10M maximum loan amount
- 15% down payment, but no requirement for a principal paydown
- 500+ FICO score
- Down Payment: 3.5% for credit scores 580 and above; 10% for scores between 500-579.
- DTI Ratio of > 50%
- Mortgage insurance required
- 600+ FICO score
- 10% down payment
- Proof that the borrower has been self-employed or the business has been in existence for 2+ years
- $6M max loan amount
Improving Credit Score
Borrowers can improve their credit score through a variety of methods. Regardless, they should be mindful that credit score increases happen over time, not right away.
- Seek Guidance from Fair Credit Mortgage Lenders: Professionals at Fair Credit mortgage lenders can offer tailored advice on improving your credit profile.
- Review Credit Reports: Regularly check your credit reports for accuracy and dispute any errors.
- Limit Credit Applications: Avoid applying for new credit frequently, as each application can temporarily lower your score.
- Maintain Low Credit Utilization: Keep your credit card balances low relative to your credit limits.
- Avoid Collections: Prevent accounts from going to collections, as this can significantly damage your credit score.
- Diversify Credit Mix: Having a variety of credit types (e.g., credit cards, installment loans) can positively impact your score.
- Pay Off Debt: Reduce your overall debt load to improve your credit utilization ratio.
- Pay Bills On Time: Consistently making timely payments is crucial for maintaining and improving your credit score.
- Increase Credit Limits: Request higher credit limits to lower your credit utilization ratio, but avoid using the additional credit.
- Build Credit History: Establish a longer credit history by maintaining accounts responsibly over time.
- Maintain Old Accounts: Keep long-standing accounts open to preserve the length of your credit history.
- Monitor For Errors: Regularly review your credit score and report for inaccuracies that could be negatively impacting your score.
Mortgage Lenders for Low Credit Score Home Loans
1. Guild Mortgage
Guild Mortgage is one of many fair credit mortgage lenders that caters to borrowers with fair credit scores, offering a variety of 620 credit score home loans including FHA, VA, and USDA loans. They have a strong reputation for working with first-time homebuyers and those with credit challenges secure low credit score home loans. Guild Mortgage’s 3-2-1 Home program is particularly noteworthy, as it allows for down payments as low as 3% for borrowers with credit scores of 620 or higher.
Guild Mortgage stands out for its innovative approach to credit assessment for low credit score home loans. They use alternative credit data and employ manual underwriting when necessary, which can be advantageous for borrowers with thin credit files or unique financial circumstances. The company also offers a range of digital tools to streamline the application process, making it easier for fair credit borrowers to explore their mortgage options and track their 620 credit score home loan progress.
2. Rocket Mortgage
Rocket Mortgage, formerly known as Quicken Loans, is one of the largest fair credit mortgage lenders in the United States. They offer a range of low credit score home loans suitable for borrowers with fair credit scores, including FHA loans and conventional loans backed by Fannie Mae and Freddie Mac. Rocket Mortgage’s online platform makes it easy for borrowers to explore their fair credit mortgage lender options and apply for a 620 credit score home loan.
One of Rocket Mortgage’s strengths is its user-friendly digital application process, which can be particularly helpful for low credit score home loans borrowers who prefer a streamlined, online experience. They also offer personalized rate quotes without impacting borrower credit score, allowing them to explore their 620 credit score home loan options before committing to a full application.
3. Caliber Home Loans
Caliber Home Loans is known for its diverse range of mortgage products, including options for borrowers with fair credit scores. This organization, one of many fair credit mortgage lenders, offers conventional, FHA, VA, and USDA loans, as well as their own portfolio of non-conforming loans that may be suitable for borrowers with credit challenges. Caliber’s Fresh Start program is designed to help borrowers who have recently experienced credit events take out low credit score home loans.
Caliber Home Loans provides personalized service through its network of loan consultants, who can guide borrowers through the mortgage process and help them find the best 620 credit score home loan options or low credit score home loans for their specific situations. They also offer digital tools to streamline the application and approval process, making it easier for borrowers to explore their low credit score home loans options.
4. Defy Mortgage
Defy Mortgage is bringing some bold, innovative energy to the mortgage game for non-traditional borrowers. Their experienced team specializes in helping real estate investors build their empire and establish their legacy with tailored loan solutions customized to meet each investor’s unique needs. They break down barriers for both buying and refinancing, making the process smoother and more secure.
That cookie-cutter, one-size-fits-all approach? Not their style. Defy knows that access to the right mortgage can make or break a project. They’ve seen firsthand that the banks are rigid – many of Defy’s employees worked there for years. It’s why Defy was started – they are driven by a passion to challenge the status quo and create a new era of lending that puts the power in the hands of borrowers. Talk about setting new standards in the industry.
Defy’s CEO, Todd Orlando, is an experienced banker who isn’t afraid of defying the traditional in the financial services space. Recognizing that the number of self-employed individuals is at an all-time high, Defy offers 75+ creative loan programs to help non-traditional borrowers achieve their goals – and that includes DSCR, fix & flip loans, construction loans and more. And the best part? They close fast and make it easy.
5. Carrington Mortgage Services
Carrington Mortgage Services specializes in working with borrowers who have less-than-perfect credit. They offer various loan programs suitable for those with fair credit scores, including FHA, VA, and USDA loans. Carrington’s Flexible Advantage program is designed specifically for borrowers with credit challenges, making them a good option for those seeking a 620 credit score home loan.
One of Carrington’s strengths is their willingness to work with borrowers who have recently experienced credit events such as bankruptcy or foreclosure. They also offer manual underwriting, which can be beneficial for borrowers with unique financial situations that may not fit standard automated approval processes. This empowers borrowers to pursue low credit score home loans.
Each of these fair credit mortgage lenders offers their own 620 credit score home loan programs, and borrowers should do research to find the lender which aligns with their financial goals. Fair credit mortgage lenders do their best to adapt their low credit score home loans underwriting to each individual’s needs.
Fair Credit Score Loans FAQs:
- What is a credit score and what does it mean?
A credit score is essentially how likely a borrower is to repay their loan. It’s pertinent to the mortgage world, as many loan programs require credit scores to determine borrower risk of default. Higher credit scores indicate a low risk, while lower credit scores are viewed as higher risk.
- Which factors impact credit scores?
Credit scores are impacted by many factors, including debt, paying bills on time, number of credit lines, opening and closing accounts, and collections.
- What are my loan program choices with a fair credit score?
Rest assured, you have plenty of options for a 620 credit score home loan! There are many fair credit mortgage lenders with options tailored to your specific needs. Whether you opt for a conventional, non-conventional, jumbo, or government-backed loan, rest assured that you’ll have options for fair credit mortgage lenders.
- How much does my down payment need to be for a fair credit score loan?
Down payment requirements for a 620 credit score home loan depend on individual fair credit mortgage lenders’ requirements. However, in some cases, fair credit borrowers may be required to put down a larger down payment, due to the inherent risk.
- Is it possible to put zero-down on a 620 credit score home loan?
Loan down payment requirements differ based on fair credit mortgage lenders. Keep in mind that the lower the down payment, the higher the interest rate will be. Plus, the loan amount will be higher, and most likely the loan term will, too. A 620 credit score home loan may also require a different down payment than a home loan for a borrower with a higher credit score.
- How can I improve my credit score?
Fear not- there are many ways to improve your credit score! Fair credit mortgage lenders can often assist in building your credit. Positive factors include paying your bills on time, reviewing your credit reports and checking for errors, building your credit history, keeping old accounts open, and paying off debt.
- Which fair credit mortgage lenders can help get a loan with a fair credit score?
There are many fair credit mortgage lenders available to help you get a 620 credit score home loan, including Guild Mortgage, Rocket Mortgage, Caliber Home Loans, Defy Mortgage, and Carrington Mortgage Services. Low credit score home loans are attainable!
- Are fair credit score loans QM or Non-QM?
620 credit score home loan options and low credit score home loans can be both QM and Non-QM, depending on the mortgage program and the lender.
- Can Defy Mortgage do fair credit score loans?
Yes! Defy Mortgage one of many fair credit mortgage lenders and has multiple programs for those with fair credit scores. We make securing a 620 credit score home loan and low credit score home loans as easy as 1, 2, 3.
