Getting a Mortgage With 550 Credit Score: How To Deal With This Situation?

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It is essential to keep up good credit rating so you can simply find any kind of financial help. Poor credit scores can cause serious problems and it takes ages to overcome this situation. Late statement payments, credit card payments, and many other reasons are some of the factors that affect your credit scores.

Credit rating, an indicator of creditworthiness, provides information that can help the lender assess the length of time required by a person to repay a debt. If you are considering all the credit report related requisites for home buying, then you should also be aware of the loan underwriting process The loan underwriting is principally a method where the lender decides whether the loan would be a risky one or not. This approval is the most important aspect in the process of buying a house. If you have bad credit history and are looking to get a home mortgage loan , then chances are you are going to need to know all about how the FICO credit scoring system works. If there is, get it changed before you apply for the mortgage loan.

Each lender sets their own ” credit guidelines”. They are simply the minimum requirements you must have in order to qualify for credit with that lender. The greater the amount of new credit that you acquire in a short period of time, the more suspicion you arouse. This will negatively affect your credit score.

Credit rating scores are independently calculated by various lenders. and,in general, they are evaluated as follows:

Range from 580 – 619 is Poor score You will get the loan but at the highest rate of interest.

Range from 620 – 659 is Average score You will get the loan but at a relatively high rate of interest.

Range from 700 – 759 is Good score You will easily manage to get a loan at a low rate of interest.

Range from 760 – 849 is Excellent score You are completely creditworthy and will receive the lowest interest rate possible.

Credit score ratings will always be calculated on the basis of your credit report. The credit report is simply a record or a journal of your past dealings involving all forms of credit Your entire credit history will be chronologically listed in the credit report. The credit reporting agencies and the companies that create credit scoring algorithms have nothing to do with any lending decision, so the floor for what is too “low” for a credit score has no definite answer. One lender may refuse to approve anyone with a FICO score lower than 600, while another might find 500 acceptable.

As you can see between,generally, 500 to 579 range is considered extremely poor score. Getting a mortgage with credit score of 550 will be near impossible from banks and credit unions, and even if one does manage to, it will be at an exorbitant rate of interest. This is because the borrowers pose a much higher risk to the lender than others. Lenders will also require that some collateral against the loan be provided. This means that the loan will have to be secured against some asset or other collateral. Of course, higher rating home buyers will qualify for a low rate and better loan programs. Anyone with a low credit score can get approved for a sub prime mortgage loan However, there are certain limitations.

Your credit score and your ability to get approved for a mortgage loan with low interest rate go hand in hand. The number that represents your credit rating may seems insignificant, but it is one of the most significant pieces of financial information available. Not only will it determine whether or not you get approved for a mortgage loan, but it determines how much interest you are going to pay for the mortgage loan.

Improve your credit score before shopping for a loan; even with a terrible credit history, you can boost a low score within a few mont
hs. Paying your bills on time and reducing your total debts are the best ways to raise your score by adding 30 or more points to your score. Although you may not qualify for prime rates, increasing your score can result in a lower interest rate. In other words, the lender may charge a 5 percent interest rate instead of 3 percent.

You can overcome some shortfall in your credit profile by shopping around. The FICO scoring model counts all inquiries related to a mortgage , student or auto loan within a 45-day period as a single inquiry, so it does not hurt to see as many lenders as possible think of your credit situation.

The minimum credit score to buy a home by availing an FHA (Federal Housing Administration) insured mortgage is around 620. A favorable employment history and a credit score of about 620 may be sufficient for one to qualify for an FHA insured loan with mortgage payments constituting approximately 30% of the borrower’s gross income.

As mentioned earlier, your credit report and score are two separate entities.Credit scores are granted by three credit bureaus in the US namely, Experian, TransUnion and Equifax. These credit scores are formulated on the basis of a software program developed by Fair Isaac Corporation (FICO), hence also termed as FICO scores.

The evaluation is based upon the credit data of an individual, available with the credit bureaus. It is possible that the three credit bureaus have different credit report regarding the same individual, hence he may actually have three different credit scores ! Nonetheless, the variation between the three reports in credit score range is not significant enough to influence the financial fate of a person.

The credit score is used to determine the rate of interest, and the approval or sanction of the loan. Apart from that, the installments are also taken into consideration on the basis of the credit score. Along with the credit score, the credit report is also scrutinized, as defaults and prior foreclosures and bankruptcies often lead to the rejection of the loan. The second aspect is the consideration of the equity of the property. No mortgage or home loan is an unsecured loan , the property is always held as a collateral. Hence, the market projection of the property is also viewed.

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