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Dear reliable money coach,
My husband and I are going to buy a house that we can afford. We are both on SSI disabilities and our credit scores are low – I have 500. Do both of our credit ratings have to be 620 in order to receive a loan? Plus, I don’t know who to talk to about the loan. – Debbie
Thanks for the great question, Debbie! Getting a loan in good shape and knowing how much home you can afford are the first steps for you and your husband to become a homeowner.
Low credit ratings do not exclude you from getting a mortgage if you qualify for a loan secured by the federal government. Ask potential lenders if you are eligible for any of the following mortgage programs.
Many people with a low credit score or income can benefit from FHA loan… This means the Federal Housing Administration, which is part of the United States Department of Housing and Urban Development. The FHA insures these loans, meaning they will repay them if the borrower defaults. Insurance makes it prudent for private lenders to provide mortgages to those who cannot qualify for a regular mortgage.
Depending on how much you can put on your home, you can qualify for an FHA loan even with a low credit rating. FHA borrowers rated 580 or higher can contribute as little as 3.5%. If your bill is between 500 and 579, you must pay a minimum of 10%.
An FHA loan has lower closing costs than a conventional loan. However, keep in mind that the amount you can borrow is limited depending on where you live. You can find the restrictions for your region on the HUD. FHA Mortgage Limits Page… And you can find an FHA lender through the HUD Lenders list search page…
If you or your spouse are veterans or military personnel, or need a rural home, you may be eligible for the following mortgage programs, even with low credit scores.
The USDA is funding direct loans to help very low-income Americans buy homes in some rural areas. And the USDA guarantees loans offered by other lenders to moderate-income buyers.
USDA mortgages do not require an upfront payment, nor do they require a minimum credit rating. Check if you are eligible for a USDA loan at USDA website…
Finally, if you or your spouse are veterans or military personnel, you may be eligible for a VA loan. Private lenders provide loans, and the US Department of Veterans Affairs guarantees some. VA loans, like USDA loans, do not require repayment of any money. You can find out more at VA website…
All that was said …
It may seem unfair that a low credit rating limits your ability to get a home loan. But for lenders, it can be a sign that you are in financial difficulty and will not be able to pay them back. If your credit scores are low because you are recovering from financial difficulties, this may not be the best time to buy a home. Instead, focus on keeping your finances in good shape and creating your loan…
Even the best mortgage rate and repayment terms represent significant financial liabilities. To understand how a mortgage will affect your budget and financial future, use mortgage payment calculator to help calculate the numbers.
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About the author:
Laura Adams is a personal finance and small business expert, award-winning author and host Money Girl, the top-rated weekly audio podcast and blog. She is often quoted in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her speeches, spokespeople and advocacy work. She received her MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, Instagram, Facebook, Twitter, and LinkedIn…