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How to qualify for a mortgage with 575 credit score

My credit score is 575. Details surrounding the score are as follows: 4 new medical collections and a auto loan that I co-signed on with my sister that has numerous 30 day late payments but never over that. All other credit is paid as agreed. I am in serious need of a mortgage but I don't want to have everyone pulling my credit just to be turned down. I currently rent but I do own a home that I have a mortgage on that I rent out. I got married last year and the home I own that has the mortgage on it was too small and it is financed through a small finance company at an ungodly interest rate. Home has been in family fo years, can't sell it so I rent it. It makes the mortgage payment. However, my husband and I with 3 kids are currently renting, never being late and are in dire straights for a mortgage so that we are no throwing our money away. Is there anyone who could help?

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi lalawrence!

The FHA approved lenders give mortgages to people with a credit score of 580. However, as you have auto loans and late payments in your credit report, I don't think lenders will agree to give you loans. You will have to try and improve your credit score first. You will also have pay a downpayment of at least 3.5%. Along with improving your credit to get a loan, you'll have to start looking out for down payment immediately. You can contact your friends or relatives who may help you with down payment as a gift.

This forum has a large number of lenders and you can go for a no-obligation free mortgage consultation with them. May be these lenders will be able to give you some service regarding improving your credit score also.

Thanks.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

your timing is not good, la.

based on your description of what constitutes your credit score, i think you'll be hard-pressed to find a lender willing to finance a home for you.

clean up the credit, get the car loan on track (even if it means you help your sister with payments) and wait. of course, being a cosigner means you will make payments on that loan anyway, if necessary.

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greg1's picture
greg1 | Joined: January 29, 2008 09:38 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I agree. There is a slim chance that the Secondary Market may consider you for FHA though. Since the auto is a co-signed account you could explain that your sister was the one who was supposed to make the payments. You could further explain that since she has made late payments you are going to become more involved in the account and prevent further late payments. I do not forsee too many problems with the medical collections. If your own credit is strong you may get an approval through Desktop Underwriter. (The system used to underwrite FHA loans)

I personally have 4 lenders allowing credit scores less than 580 and as low as 500 as long as Desktop Underwriter approves the loan. So, you may be able to do something now. Bad news is you need a 3% down payment. Good news is you can get a gift from a family member for this down payment. You also may qualify for a tax rebate of up to $7,500 when you file your taxes next year and could possibly use that to pay the family member back. One thing is certain though. The advice given above is good. You will pay a slightly higher interest rate due to your credit score.

Another idea to entertain is adding a non-occupant co-borrower on the FHA loan. It can be someone who does not live in the property. FHA is one of the only loans allowing that.

USDA is another loan that may work. However, when I spoke with my USDA office they told me that 580 and below has a very very minimal chance for approval. That loan does not require a down payment. It has income and geographical restrictions. You can find out more about those by clicking [url=http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do]here.[/...

In summary the only way to find out for sure is to try. We are not underwriters. We also do not see the whole situation. I woud hope that if you do attempt this you should have the car note current and it may be wise to make some payment arrangements on the other collections to show that you are trying to take care of your current obligations.

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parmoney's picture
parmoney | Joined: December 5, 2008 04:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Another challenge your facing here is the equity in your rental. Be sure to ask the lending institution about it the next time you try for financing.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello everyone... I'm planning to buy a property but I've a credit score of 575. I may be able to come up with some down payment immediately but I don't know the exact requirement. I don't know whether or not I would be able to qualify for a loan. Do you guys have any suggestions for me? What should I do in order to [url=http://www.mortgagefit.com/Mortgage-Basics/do-i-qualify-for-a-mortgage.h... for a mortgage[/url]?

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jannet,

It will be difficult for you to qualify for a mortgage with a credit score of 575. In case of FHA loans, you would require a credit score of 620 whereas for conventional loans, you should have a credit score of 720-740. Apart from this, there is a down payment requirement as well. You should have a down payment of 20% in case of conventional loans and 3.5% for a FHA loan.

I would suggest you not to take a loan now. You'll have to improve your credit score so that it reaches 620. This will help you get a FHA loan. Get hold of a copy of your credit report and check out the negative items on it. Try to remove those negative items from your report. This will help you improve your score to some extent. Check out the given page to know some more steps to improve your credit score:
http://www.mortgagefit.com/credit-rating/credit-repair.html

Take care

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

jannet, we've seen evidence on these forums that a score of 575 will suffice for many lenders. that's not to say you're automatically going to be approved, though; what constitutes your 575 score and all of the other factors that come into play will be taken into consideration.

you stated "I may be able to come up with some down payment immediately " but you didn't indicate that you have plentiful funds. with fha loans (the only product we are aware of that might accommodate a 575 score), the minimum down payment requirement is 3.5% of the purchase price. you may have that amount already, but if you have collections, charge offs, etc. on your credit report, most lenders are going to require that they be paid in full prior to your obtaining a new mortgage. so even if you have the funds for down payment, they may dissipate if you are required to use them to eliminate bad debts which have contributed to your low score.

frankly, sara's suggestion that you work on your credit and build it up to the point of 620 or higher makes an enormous amount of sense to me. eliminating the problem areas and enhancing the rest of the credit report will do you well over the long run, as well.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello,
I am looking to get a loan as soon as possible to be able to buy a home.
Does anyone have any suggestions any lenders?
My credit is around the 575 range?
Please let me know as soon as possible.
Thank You

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Zim,

It is not going to be easy for you to qualify for a mortgage with a credit score of 575. You need a score of 620 to qualify for an FHA-insured mortgage and a score of 700+ to get approved for a conventional loan. However, there are some lenders who offer loans at 580 credit scores. But they are very few in number and they will also require you to make a good amount of down payment. You can go for a no-obligation free mortgage consultation with the lenders in this community and check out if you qualify a mortgage with a credit score around the 575 range.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

you pay a penalty for having poor credit. 575 is poor credit, no matter how you slice it. you'll probably pay a higher rate or more points (or both), and you will often find that you'll need reserves (funds left over after you close) in order to qualify.

one's best bet is to fix whatever is wrong with credit before shopping for a mortgage. defer your thoughts of purchase until you are truly ready - which means credit-ready.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks for some suggestions,
Does anyone know any lenders that qualify people with a credit score around 580?
Need answer asap.
Thank You

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Zim,

There are very few lenders who still offer loans to borrowers with credit score around 580. You find such lenders only in certain areas. It is difficult to find such lenders in this market. I think you should pull your credit report and find out the reasons for your poor credit score. If you have any derogatory items on your credit, you should take action to remove them from the report. In case there is any wrong information given, you should dispute it with the credit bureaus and have them taken off the report. Once your scores improve, you can shop around for a home loan at an affordable interest rate.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi, I have a credit score of around 575 and need a loan for a house. I have looked at my credit and I am going to fix a couple problems with it (like credit card debt). How long will it take for my credit score to come up after that? Thanks!

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi toribaby,

If there are certain negative items on your credit report and you take initiative to pay them off, it should not take too much of time for your credit scores to improve. Once you have paid off the outstanding debts or have settled them, you should request your creditors to report that to the credit bureaus. If the negative items are not removed from your report, you should send the bureaus a letter (along with the necessary documents in support of your claim) requesting them to remove the items.

Thanks,

Jerry

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

as for how long...it's going to be a few months, in all likelihood. depending on what is being reported as favorable on your credit record, eliminating the negatives should begin increasing your score slightly soon. you need to have favorable information, though, in order to really be able to boost the score.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello, I am disabled with chronic health problems resulting very large medical bills every year. I have 1 credit card that I've paid off every month since april, 2012. I paid off a $3,000 bank loan in 5 months in 2012. All my collections are for medical. I can put down 10%; can I get a mortgage?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Trey,

With a credit score of 575, you won't be able to qualify for any kind of loan. You will have to increase your credit scores and then look out for loans.

Thanks

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