Convince your bank that you’re mortgage-worthy

Convince your bank that you’re mortgage-worthy

People with low FICO scores do get home mortgages, even today. Here’s how they do it.

By Marilyn Lewis

If your credit score is in the tank, you might think you’re out of luck when it comes to getting a mortgage. But that’s not necessarily true. Despite the tight-credit era ushered in by the housing crash, people with FICO scores in the 600s and below do get mortgages.

If your credit score is below 680, there are three important things to know before you apply:

1. You’ll need to be prepared to pay more for a mortgage than someone with a stronger credit score. How much more? We’ll get to that in a minute.

2. When you have “impaired” credit, your ability to get a mortgage hinges to a large degree on the answer to this question: Why is your credit score low?

3. It’s hard to get these loans. You’ll have the best luck with a mortgage broker, loan officer or lending company with expertise in helping low-score borrowers.

You’ll pay more The best interest rates go to mortgage borrowers with scores of 720 and above. However, many people are surprised to learn that home loans do still exist for people with flawed credit.

Slide show:              The best home loan for your credit score

The catch? It will cost you more. Often, a lot more. You can experiment with the calculator at MyFico to see the differences. Here’s an example of the added interest costs on a $200,000 mortgage:

Low credit scores pay more
FICO score Rate Payment*
760 to 850  3.986% $958
700 to 759  4.208% $984
680 to 699  4.385% $1,005
660 to 679  4.599% $1,031
640 to 659  5.029% $1,084
620 to 639  5.575% $1,152
*Note: Based on a $200,000, 30-year fixed-rate mortgage
Source: MyFico

Before committing to an extra-high-priced mortgage, ask yourself: Is purchasing hundreds of thousands of dollars’ worth of real estate the best for your finances right now? You may do better by paying debts and re-establishing solid a financial footing. For trustworthy help, call the National Foundation for Credit Counseling at 800-388-2227 and check out this guidance from the Consumer Financial Protection Bureau.

But not all low-score borrowers are in hock. Doctors, for example, are “notorious” for having bad credit, even with solid incomes and lots of cash in the bank, says Eric Mitchell, vice president at Priority Financial Network, a mortgage bank based in Calabasas, Calif. “It’s common to see a doctor making $500,000 a year living below their means with a 580 credit score because they’re so busy doing what they do [that] they forget to pay their bills on time,” he says.

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