Learn how to buy a house with poor credit and what steps you can take to improve your financial health.
For those of you who are scared about buying a house because your credit isn’t great, don’t give up. It may be possible to buy a home with bad credit. Find out how knowing your credit score and making your finances better can help you buy a home, even if you have bad credit.
Buying a house is an exciting milestone in life. However, your credit score plays a crucial role in determining if you can get approved for a mortgage and at what interest rate. So what are your options if you want to buy a house with a low credit score like 480?
Why Your Credit Score Matters For Buying a House
Lenders look at your credit report and score when you apply for a mortgage to see if they can lend you money. Your credit score tells them how likely you are to pay back the loan.
The higher your score, the lower your interest rate will be. Even a small difference of 0.25% to 0.5% in your rate can save you thousands of dollars over the life of the loan.
With a score of 480, you are considered to have poor credit. This will make it more challenging to get approved for a mortgage. However, it is still possible with the right strategy and loan program.
What is the Lowest Credit Score to Buy a House?
The lowest credit score needed to buy a house depends on the type of mortgage:
- FHA loans – 500 with 10% down payment, 580 with 3.5% down
- VA loans – No official minimum but most lenders want 580+
- USDA loans – No official minimum but prefer 620+
- Conventional loans – Around 620
So technically, the lowest credit score to buy a house is 500 if you pursue an FHA loan. But you’ll pay a higher interest rate and be expected to make a larger down payment.
With a 480 credit score, an FHA loan is likely your best option.
FHA Loans for Low Credit Scores
The FHA mortgage program, backed by the Federal Housing Administration, offers more flexible credit requirements than conventional loans.
Here are some key points about FHA loans:
- Minimum 500 credit score – With a 10% down payment
- Minimum 580 score – With 3.5% down payment
- Higher interest rates – But not as much as with conventional loans
- Mortgage insurance – Required for life of loan
- Low down payments – As little as 3.5% down
While your interest rate will be higher than buyers with good credit, FHA loans limit the rate spikes compared to conventional mortgages. This makes them one of the best options for purchasing a home with bad credit.
Tips for Getting Approved with a 480 Credit Score
When buying a house with a poor credit score, follow these tips to boost your chances of getting approved:
- Get pre-approved – Gives you a chance to improve your credit first
- Add a co-signer – Their good credit can offset yours
- Make a larger down payment – Reduces lender risk
- Explain past issues – Be upfront about any financial struggles
- Pay down debts – Improve your debt-to-income ratio
- Build credit history – Open new accounts to show responsible usage
Taking steps to improve your credit score can also lead to more favorable loan terms. But even with a 480 score, buying a home is possible with an FHA-insured mortgage.
Alternatives if You Can’t Get Approved
If your credit score is too low to qualify for even an FHA loan, consider these alternative options:
- Improve your credit – Pay down debts, dispute errors, etc.
- Save for a larger down payment – At least 10% down improves chances
- Enlist down payment assistance programs – Grants and loans to cover costs
- Rent for now – Build your credit over the next year or two
- Get a co-signer – Partner with better credit to qualify
With some time and effort, you can boost your credit high enough to buy. But be cautious of predatory lenders promising loans despite very bad credit.
Buying a House with Bad Credit – The Bottom Line
Yes, you can buy a house with a credit score as low as 480 through an FHA mortgage if you meet the other requirements. While you’ll pay higher rates, it makes homeownership possible even with poor credit.
Work on raising your score, saving for a down payment, and finding a lender that has programs for people who have had trouble with their credit. If you want to own a home, don’t let your credit score stop you. You can be a homeowner even if you have bad credit if you don’t give up and follow the right steps.
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Learn how to buy a house with poor credit and what steps you can take to improve your financial health.
A couple moving boxes into their new house, despite challenges with bad credit.
If the thought of buying a home has you nervous because your credit is less than perfect, don’t give up hope. It may be possible to buy a home with bad credit. Read on to discover how understanding your credit score and improving your financial health can lead to homeownership, even with poor credit.
Keep an eye on your credit.
It’s a good idea to find out where you’re starting from when it comes to your credit score and shopping for a mortgage. If you’re a current U.S. Bank client, you can check your credit score for free with our tool so you know where you stand. And anyone has access to check their report once a year for free at annualcreditreport.com. When reviewing your credit report, look for errors or anything else that doesn’t accurately reflect your true credit history. If you find anything, dispute it with the credit bureau or the creditor reporting the information.
How I Bought A House With No Credit Score
FAQ
Can you buy a house with a 580 credit score?
Lenders may not be able to re-sell loans given to borrowers with credit scores less than 620, possibly as low as 580. So even though FHA requirements will allow 500 to 580 as a minimum credit score, a minimum range of 580 to 620 is more realistic for prospective FHA borrowers. The minimum credit score to buy a house with a VA loan is 580 to 620.
What credit score do you need to buy a house?
To buy a house, most mortgages (including the popular conventional loan) need a credit score of at least 620. A higher score puts you in better shape, though. If your score is 740 or higher, you have the most options and can get the best interest rates. If your score is below 620, you still have options.
Can you buy a house without a credit score?
It’s possible, but challenging, to buy a house without a credit score. Some lenders use manual underwriting processes that consider alternative credit data, such as rent and utility payments. However, these loans may come with higher interest rates or other conditions. What credit score is needed to buy a condo?.
Is 780 a good credit score to buy a house?
The higher your payment, the higher your debt-to-income (DTI) ratio. The higher your DTI ratio, the less you qualify for to buy a home. Conventional lenders now require a 780 credit score or higher to qualify for the lowest mortgage interest rates, so anything above 780 is considered an excellent score to buy a house.
Is 620 a good credit score to buy a house?
Most lenders set a 620 minimum benchmark for you to buy a house, though that’s not necessarily a “good” score to buy a house. There’s a few reasons the minimum score isn’t good for buying a house: The lower your credit score, the higher your payment. The higher your payment, the higher your debt-to-income (DTI) ratio.
Do you need a higher credit score to buy a home?
Generally, having a higher credit score will help you qualify for a home loan with a lower mortgage rate, so it’s important to work on improving your credit score well in advance of buying a home. Mortgage credit score requirements vary based on a number of factors, including the loan type, amount and lender.
Can you get a home loan with a 480 credit score?
Even though you have bad credit (480), private investors will lend you money through hard money brokers so you can buy a new home or refinance the one you already own.
Can I get approved with a 480 credit score?
A 480 FICO® ScoreΘ is significantly below the average credit score. Many lenders choose not to do business with borrowers whose scores fall in the Very Poor range, on grounds they have unfavorable credit.
What is the lowest credit score to buy a house?
The lowest credit score to buy a house generally depends on the type of mortgage you’re applying for. For conventional loans, a score of at least 620 is typically required.
Can I recover from a 480 credit score?
Yes, a credit score of 480 is salvageable with dedicated effort. Over time, you can raise your credit score by paying your bills on time, lowering your debt, disputing mistakes on your credit report, not applying for new credit, and building a good credit history.