Home Loan Options for the First-Time Home Buyers with a 500 Credit Score

500 credit score home loans in Houston

Your credit score plays a significant role in the home buying process. Mortgage lenders check this to determine your ability to responsibly borrow and payback it on time. If you are a first-time homebuyer and your credit score is high, then it will be easy for you to qualify for a loan. However, that does not mean a first-time homebuyer with a low credit score, such as 500, can’t get approval for a loan program. The options can be limited, but getting a home loan is not impossible.There are several lenders, who offer 500 credit score home loans in Houston. Before you opt for any of them, take a look at the loan programs that you can choose when your credit score is low.

  • FHA loan

An FHA loan offers a low down payment option, as well as lower qualification requirements as far as credit and DTI when compared to conventional home loan programs. So, if your credit score is low and you want to get approval for a home loan, you can opt for this home loan program. But to qualify for an FHA loan with low credit score, you will need to mitigate factors like a low DTI ratio. Moreover, if you have had declared bankruptcy in the past, you may still be able to qualify for an FHA a year or two after the date of your bankruptcy. But you have to maintain a good credit score after your debts were discharged.

The same is applicable for previous home foreclosure.  If you have foreclosed on a former home but have maintained a good credit score since then, you will be able to qualify three years after the date of foreclosure. Lastly, an FHA loan allows you to have a higher DTI-ratio compared to traditional loans, as long as you have a credit score in the mid-to-high range. It is beneficial for first-time homebuyers with low income who have debt.

  • VA loan

Are you an active-duty military member? Then, you might also be able to qualify for a VA loan with lower qualification requirements, including no required down payment, higher allowed DTI, and no mortgage insurance payments. Although there is no standard requirement for credit score of a VA loan, some members will have a member in mind. Just like an FHA loan, a VA loan is also forgiving on past financial difficulties, like bankruptcy.

There is no down payment requirement for a VA loan. Moreover, there is no mortgage insurance necessary for a VA loan. Instead, you can pay a one-time funding fee, which can be paid at closing or built into the loan. Even though the required credit score for a VA loan is higher than an FHA, a VA loan is more lenient with DTI ratios, allowing a ratio as high as 60% to qualify for a fixed-rate loan. You should keep this in mind that to qualify for a VA loan, you have to be currently serving in the military of the U.S., be an honorably discharged veteran or be a not-remarried surviving spouse of a veteran or service member who died in service.

So, if you are a veteran then choose a VA loan, otherwise, opt for FHA loan. Both of the loans are available at lower credit score. Go for the right loan option and fulfill your dream.

Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.