How to Get a Mortgage, Even with a Less-Than-Perfect Credit Score

Only 1.6% of the US population has a credit score of a perfect 850, but some experts say you only really need 760 to qualify for the best rates on credit cards, home loans auto and mortgage. However, one representative from the mortgage lending industry argued that you can still get a mortgage with a decent or average score as long as you’re working hard.

Since Congress passed a $2 trillion coronavirus stimulus package, 4 million Americans (and counting) have requested a mortgage ban in response to the recession. But despite the concerns, the real estate market remains hot, according to Heidi Gage, Mortgage’s mortgage officer.

“We’re still closing a lot of loans,” Gage told CNBC Select. While all the economic turmoil makes it harder to qualify for credit products, lenders are more concerned with your income than your credit score because so many people today. are unemployed.

Below, CNBC Select outlines the credit score you need to get approved for a mortgage during the coronavirus pandemic, looks at how layoffs and layoffs affect your mortgage chances, and splits. Share tips on how to improve your score while you wait for the right time to buy a home.

In the wake of the coronavirus pandemic, lending activity has changed dramatically over the past few months. Credit card companies have begun to cut customer credit lines to reduce the risk of default. Meanwhile, on the home loan side, investors are pulling back on jumbo loans (for mortgages over $510,400 and $765,600 in high-cost areas) and underfunding mortgages. standard for borrowers with variable income (such as self-employment, one-time income, income fluctuations, etc.)

But for casual borrowers who still have a steady stream of income, Gage says there are viable options.

“Many lenders are still giving borrowers 620 points, as long as the borrower has sufficient proof of income,” Gage said. A score of 620 is in the decent/average range under both the FICO and VantageScore scoring models.

Keep in mind: A good or excellent credit score will qualify you for better rates and terms, but mortgage lenders can work with a lower score as long as your income is controlled. , said Gage. It also helps if you have a down payment of at least 20%.

However, proving a stable income becomes even more necessary.

“The biggest challenge we faced on the lending side was layoffs and pay cuts,” says Gage.

During the mortgage application process, your employment must be re-confirmed several times. If you get fired at the same time as you apply for a mortgage, you may have to wait and reapply, no matter how good your credit score is.

“In many cases, we have seen buyers and sellers exit the market due to layoffs,” says Gage.

There are three main credit bureaus – Experian, Equifax, and TransUnion. When applying for a mortgage, lenders typically obtain all three of your credit reports and score using each bureau’s scoring model (FICO, Equifax, and VantageScore, respectively). Gage reports that her lender uses your mid-three credit score for borrower applications. Other mortgage lenders may have their own proprietary scoring system.

If you’re struggling or you’ve recently been laid off, you may feel like there’s not much you can do to improve your mortgage chances. But there are some positive steps you can take to improve your credit score while looking for a new job.

If you’ve set a goal of getting a mortgage next year, there are a few things you can do to turn your reasonable credit score into a good one. According to some experts, you’ll get the best interest rates and terms if your credit score is 760 or higher (although Gage can’t confirm this).

The most important things you can do to keep your credit score high is pay your bills on time and keep your debt to credit ratio low (this is called your credit utilization ratio). While you’re saving money to pay upfront, consider setting aside extra cash to allocate toward paying off your credit card at least 30 to 60 days before you apply for a loan. Reducing your credit utilization ratio to less than 10% is one of the fastest ways to make your score higher in a short amount of time.

Refrain from closing any older accounts until your mortgage is approved, as that can affect your score as well. And in the year before applying for a mortgage, try to limit new credit requests so you don’t have too much trouble on your report.

While the economy improves, you can use a new credit card to help boost your score.

While the best travel credit and rewards cards come with strict credit requirements, there are several cards for those with average, or even poor, credit scores. This can be a good option when your goal is to improve your credit score, but only if you’re comfortable using a new line of credit.

The new credit card will add to your total available credit and improve your credit utilization ratio. But if you’re worried that you could easily max out and fall into a pile of debt, you can pause this option until you’re ready. (Read four things you should do before opening a new credit card.)

See our full comparison here.

Note: While the above cards are typically marketed to applicants with average or decent credit, there’s no guarantee you’ll be approved. We recommend checking your approval rate before you submit a full application (resulting in a tough request for your report).

“Covid-19 has not necessarily made loan approval more difficult, however, it has increased the amount of paperwork,” Gage said.

You’ll likely need to re-verify your employment multiple times when you apply for a mortgage during the coronavirus.

But even though employment is non-negotiable right now, you can still get a mortgage with an average or decent credit score. However, to qualify for the best mortgage rates, you’ll want to improve your credit score as much as possible and save up for a sizable down payment.

Information about the Capital One QuicksilverOne Cash Rewards Credit Card and the Capital One Platinum Credit Card has been independently obtained by Select and has not been reviewed or provided by the card issuer prior to publication.

Petal 2 Visa Credit Card issued by WebBank, FDIC Member.