Can I Get a Mortgage with a 600 Credit Score?
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Despite being a below-average credit score, prospective home buyers with 600 credit scores may qualify for home mortgage loans.
Borrowers with a lower credit score may not qualify for conventional loans, but loan options exist for people with a steady income and a reasonable credit history.
Credit scores range from 300 to 850. The typical minimum credit score requirement is roughly 580 through FHA mortgage lenders and other various home loan programs.
Can I Get a Mortgage with a 600 Credit Score?
Scores are either calculated using the FICO credit score or VantageScore model, which uses similar formulas based on the consumer’s credit history compiled by Equifax, Experian, and Transunion—the three credit bureaus.
Lenders typically have internal standards regarding the acceptable minimum credit score for each loan type. The following guidelines summarize how most mortgage brokers or loan officers interpret credit scores:
- Bad credit score: 629 or below
- Fair credit score: 630 to 689
- Good credit score: 690 to 719
- Excellent credit score: 720 or higher
Five general factors influence a borrower’s credit score. The two most important include the payment history and the amount of debt owed, which together, equate to approximately 65%.
Individuals with higher credit scores generally have a good payment history without missed monthly payments. The amount of debt, particularly maintaining a credit utilization rate of less than 30%, also weighs heavily on having overall good or bad credit.
Credit Utilization Rate (%) = Total Debt Used / Total Available Credit
The remaining 35% of your credit score is based on the length of credit history, the variety or mix of different types of credit accounts such as personal loans or auto loans, and whether the consumer has recently applied for multiple new credit accounts.
Having demonstrated consistent financial responsibility using two or more categories of credit is positive, while abruptly pursuing new sources of credit might suggest unforeseen financial problems.
Home Loans You Can Get With a 600 Credit Score:
FHA Loans
The Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD), created the FHA loan program largely for promoting first-time homeownership among those with low credit scores and a minimal down payment.
The government incentivizes FHA mortgages by backing and protecting them for approved FHA lenders that participate. Although individual lenders engaged in FHA financing have some latitude, borrowers in FHA mortgage programs generally must have a score of 580 or more.
FHA loans can be used for financing single-family homes, multi-family homes of two to four units, or condominiums. Borrowers must have a 3.5% down payment and then make monthly mortgage payments for repaying FHA home loans over either a 15 or 30-year loan term.
VA Loans
The U.S. Department of Veteran Affairs (VA) offers a federally-backed mortgage loan program with favorable mortgage rates and down payment assistance geared specifically for military veterans.
VA loans require the borrower to obtain a Certificate of Eligibility (COE) that proves completion of sufficient military service. Like FHA loans, VA loan financing is also provided exclusively through approved mortgage lenders.
The minimum credit score requirements for VA loans vary according to the individual lender’s discretion. Researchers from Experian found that most VA lenders required a 670 or higher credit score.
VA loans require no down payment; however, a one-time funding fee that typically ranges from 0.5 to 3.6% and closing costs of roughly 3 to 5% of the loan amount may apply
Examples of closing costs include title insurance, taxes, and fees for appraisal and underwriting.
Conventional Home Loans
Unlike FHA, VA, or USDA loans, a “conventional” home loan lacks any governmental backing and often has more rigid credit requirements.
Prospective homeowners with bad credit may struggle to qualify for conventional financing, as credit scores typically must exceed 620.
Consumers with an excellent credit history usually prefer conventional loans because they will likely qualify for the lowest current interest rates available in the market.
Depending on the circumstances, many borrowers with a 3% down payment will qualify for a conventional loan; however, most lenders will require homeowners with less than a 20% down payment to pay private mortgage insurance (PMI).
The premiums that homeowners pay for private mortgage insurance varies, but it is usually close to 1% of the total loan balance each year.
Conventional loans may also be subcategorized into either conforming or non-conforming loans. The most common non-conforming conventional loans are jumbo loans, which are for high-priced property purchases.
The minimum loan amount that constitutes a jumbo loan ranges from approximately $548,000 to $822,000 based on the location of the property. The underwriting guidelines are generally more stringent for these loans and higher interest rates might apply.
Non-Qualified (Non-QM) Mortgages
Non-qualified (non-QM) mortgages represent a very small segment of the market that appeals primarily to the self-employed who have an inability to qualify for mainstream conventional or government-backed options.
Borrowers ordinarily must produce documentation that satisfies federal guidelines imposed by Fannie Mae and Freddie Mac including payroll records, tax returns, bank statements, etc. Non-QM options are generally funded by private investors and have fewer such requirements.
Although non-QM interest rates usually exceed those of conventional loans, as more Americans operate as independent contractors, some experts suggest that demand may also increase.
Non-QM mortgages generally have no private mortgage insurance requirement, which makes sense as recent data showed the average borrower’s down payment was 21% and the credit score was 760.
How Does a Low Credit Score Affect a Home Loan Application?
Lenders view credit scores as a strong indicator of the risk that an applicant represents. Between applicants with all other factors being equal, those with scores of 680 to 699 receive approximately 0.40% higher interest rates than those with scores of 760 or greater.
In the aforementioned scenario, the applicant with the lower score winds up paying many thousands more in interest for their home.
With most U.S. homebuyers choosing 30-year mortgages, a small fractional percentage difference in the interest rate really adds up over the long term.
Sometimes consumers notice that they have differing credit scores. Although an estimated 90% of lending decisions are based on a FICO scoring model rather than the VantageScore model, both organizations are used and both also continue updating, i.e., VantageScore 3.0, 4.0, etc.
Also, scores are calculated based on the reported data contained by each credit bureau, and some lenders might not report to all three.
Another potential reason for the discrepancy is timing, as one credit bureau might update their reports at a certain time each month or some other interval, meaning the score is based on older or newer data.
How Much Extra Will a Low Credit Score Cost Me?
The Impact of Mortgage Rates by Credit Score
| Principal Amount | Fixed Term | FICO Score | APR | Monthly Payment | Total Interest Paid |
| $ 200,000 | 30 years | 760 – 850 | 2.487 % | $ 789 | $ 84,001 |
| $ 200,000 | 30 years | 680 – 699 | 2.886 % | $ 831 | $ 99,146 |
| $ 200,000 | 30 years | 640 – 659 | 3.53 % | $ 901 | $ 124,519 |
| $ 200,000 | 30 years | 620 – 639 | 4.076 % | $ 964 | $ 146,901 |
| $ 300,000 | 30 years | 760 – 850 | 2.487 % | $ 1,183 | $ 125,001 |
| $ 300,000 | 30 years | 680 – 699 | 2.886 % | $ 1,245 | $ 148,719 |
| $ 300,000 | 30 years | 640 – 659 | 3.53 % | $ 1,352 | $ 186,779 |
| $ 300,000 | 30 years | 620 – 639 | 4.076 % | $ 1,445 | $ 220,352 |
SOURCE: FICO Loan Savings Calculator
How to Improve Your Credit Score:
The data clearly reveals how those seeking to finance a home purchase may realize significant long-term savings by taking action that will boost their credit score.
Get a Credit Builder Loan
A credit builder loan from Credit Strong is an excellent option among the types of accounts that build credit. Credit Strong is an FDIC-insured financial institution in Texas that developed specialized loans for both initiating credit history and bolstering credit scores.
The process involves obtaining an installment loan from Credit Strong where the funds borrowed are secured in a savings account. The borrower simply repays the loan by making fixed monthly payments.
In the meanwhile, Credit Strong regularly reports the status of the payments to Experian, Equifax, and Transunion throughout the term of the loan. The borrower may access the funds in the account once the loan balance is paid in full and thus has built a solid payment history.
Check Your Credit Report for Any Discrepancies
Consumers may receive one free copy of their credit report from the credit bureaus each year. Regularly monitoring your credit report will allow for earlier detection of any potential errors or inaccuracies that might exist.
For example, instances have occurred where a consumer’s credit report contained an account that a lender had mistakenly reported. Even more importantly, checking the report may reveal evidence of fraud or identity theft where someone has opened an account in your name.
Taking the time to diligently review the details of your credit report provides insight into how potential lenders view your status.
Regularly checking your credit report also may provide you with a means for assessing how particular credit accounts are impacting your overall score and gives you a baseline from which to set goals and create improvement.
All three of the major credit bureaus now have easy-to-use tools on their websites for notifying them of any potential credit report inaccuracies.
Make On-Time Payments
When mortgage lenders and other financial institutions assess your credit, they are evaluating if you have demonstrated responsible credit-related behavior. Failing to make a payment on time results in an adverse entry remaining on your credit report for roughly seven years.
According to Equifax, the credit scoring models consider other related aspects of each late payment. For example, how long the payment remained delinquent i.e., 30 days, 60 days, and the amount that was owed.
The latest VantageScore 4.0 model fact sheet shows that payment history is clearly the leading behavioral contributor used in calculating credit scores.
In many cases, the key to avoiding late payments involves improving your organizational skills. Consider using tools such as automatic electronic payments or other forms of technology that will help you stay organized.
Avoid Too Many Hard Inquiries
Each time that a consumer formally applies for a credit account, such as an unsecured credit card or personal loan, the lending institution will access and review the applicant’s creditworthiness based on current information from one or more of the credit bureaus.
This process for checking an applicant’s credit is typically referred to as a hard credit inquiry or hard “credit pull.” When these inquiries occur, a credit report entry appears and will remain visible for a two-year period.
Although prospective lenders assume that they will encounter hard inquiries on credit reports, most people should expect that each additional credit inquiry may lower their FICO score by approximately five points.
Despite the fact that hard inquiries appear on credit reports for two years, FICO only considers entries from the previous 12 months when calculating consumer credit scores.
The primary concern is that lenders view multiple recent credit inquiries, particularly when they are associated with different types of credit accounts, as a potential sign of risk.
Keep in mind that your credit score is one of several factors that can influence your mortgage application. You must also work on boosting your income, paying down excess levels of debt, and saving for a larger down payment.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.
