How to Get a Mortgage Loan with a Low Credit Score: 7 Smart Tips

Getting a mortgage loan looks hard when your credit score is low. The truth is that there are ways to get a mortgage with a low credit score approval. You believe lenders won’t look your way, therefore it’s impossible. The fact is that lenders often don’t share all the details upfront.

Many Americans have credit scores below 670, which is considered “fair” or “poor.” Nevertheless, every year, thousands of people with low credit scores still manage to obtain mortgage loans. How do they do it? They learn the hidden rules, utilize special loan programs, and devise creative approaches. You can too.

In this post, we’ll break everything down. We’ll show you how getting a mortgage loan with a low credit score is possible, even if you’ve faced rejection before. Additionally, we’ll reveal and walk you through what lenders typically keep to themselves.

What Is a Low Credit Score?

Let’s look at what a low credit score is. To begin with, a credit score is like a grade that tells lenders how well you are at repaying money. It ranges from 300 to 850. The higher the number, the better. A credit score below 620 is often considered to be low when it comes to mortgage requests.

You don’t have to worry, as low doesn’t mean no. It simply means you may need to take additional steps to get approved. That’s where the low credit score mortgage strategy comes into play.

What you need to know about a Mortgage Loan and a Low Credit Score

It may surprise you to know that many lenders work with borrowers who have bad credit. They don’t always advertise this because they prefer borrowers with zero risk. Here’s what they might not tell you:

There are government-backed loans made for people with low credit scores.
You can offset your credit score with other strong financial signs.
Manual underwriting can give you a second chance.

Let’s break these down further. Each factor is different in its way. By checking them one at a time, we can better see how they can work together to help you reach your goals. We’ll start with the most important factor and then cover the rest one by one.

1. Use Government-Backed Loans

To begin with, government-backed loans are a big help when you are applying for a mortgage loan with a low credit score. Here are your top options:

FHA Loans (Federal Housing Administration)

FHA loans are designed for people who don’t have perfect credit. You can qualify with a credit score as low as 500. You only need to put 10% down or have a score of 580 with a 3.5% down payment.

VA Loans (Veterans Affairs)

If you’re a veteran or active military, a VA loan doesn’t even require a minimum credit score. Lenders may prefer at least 580 to 620. These loans don’t require a down payment, which is a huge plus.

USDA Loans (U.S. Department of Agriculture)

When you want to buy in rural or semi-rural areas, consider these loans. They typically require a credit score of 640, but some lenders will work with lower scores through manual underwriting.

Manual underwriting is when a real person reviews your mortgage application. Steady income, low debts, or a big savings account can fasten your approval in manual underwriting.

2. Show Strong Financial Habits

Do you know that lenders like to see that you’re making smart money choices, even if your score is low? Good money habits can help make up for a low credit score when you need a mortgage loan. Here are some factors that can help:

Proof of steady income
Low debt-to-income ratio (DTI)
Saving for a down payment
No missed rent or utility payments

These factors can strengthen your mortgage request when you have a low credit score, during manual underwriting.

3. Improve What You Can

While you’re applying or planning to apply, it also helps to fix what you can on your credit. Even small changes can make a big difference.

Pay down credit cards
Settle any collections
Dispute errors on your credit report

For example, if you reduce your credit card balance from 90% to 30% of the limit, your score could jump by 20 to 50 points in a few weeks. This happens because how much of your credit limit you use is one of the biggest factors that affect your credit score.

4. Consider a Co-Borrower

Additionally, have you considered applying with someone who has better credit? This could be a spouse, parent, or trusted friend. Having someone with good credit co-sign means you’re more likely to get approved and get better rates. But you’ll both be responsible for paying back the loan.

Lenders look at the average or stronger credit score between both applicants. This might boost your chances of getting a mortgage with a low credit score. Just know that you both will have to pay back the loan together.

5. Work with the Right Lender

You need to know that not all lenders are the same. Some specialize in helping you with a mortgage loan when you have a low credit score. These lenders are often more flexible and likely to offer you options like FHA or manual underwriting.

What do I advise? Shop around. Get quotes from at least 3 different lenders. Compare interest rates, fees, and customer reviews. These will inform your decision.

6. Build a Bigger Down Payment

Another smart trick is to save for a bigger down payment. If you can put 10% to 20% down, lenders may overlook a lower score because your loan is less risky to them.

This also shows responsibility and lowers your monthly payment, too. Plus, you’ll own more of your house right away, which is good if home prices go down.

In addition, you won’t owe more on your mortgage than your home is worth. Having more equity gives you more options if you need to sell or refinance later.

7. Before You Apply for a Mortgage Loan with a Low Credit Score

Have you considered some programs that offer free help to improve your credit and understand the mortgage process? These programs can also connect you with lenders that specialize in offering mortgage loans with low credit score approvals.

Plus, completing a class might help you qualify for down payment assistance programs (DPAs). Think about this.

You also need to watch out for high interest rates. Of course, a lower score might mean you get offered a higher interest rate. Be careful here. Higher rates mean bigger monthly payments over time. If your rate is high now, plan to refinance later once your credit improves.

Conclusion

Just because your credit score is low doesn’t mean your dream of owning a home using a mortgage loan is over. Lenders don’t always tell you about FHA loans, manual underwriting, or state assistance programs. Now you know. Use this knowledge to your advantage.

Yes, getting a mortgage with a low credit score takes work. But it’s doable. Keep improving what you can, know your options, and partner with people who want to help.

So, whether you’re at 580 or 620, don’t count yourself out. A low credit score mortgage loan is within reach if you know the rules and play them right. Be patient, and don’t be afraid to ask questions. Your home may be closer than you think.