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Life happens, and sometimes those challenges can affect your credit score. When you take a hit to your credit score, it can take months or even years for it to climb back up slowly. Unfortunately, many erroneously believe that having a poor credit score means that they won’t qualify for a home loan, and that simply isn’t the case.

Most lenders don’t have a minimum credit score requirement. In fact, conventional lenders are free to set their minimum requirements at their own discretion. However, most conventional lenders will set their minimum requirement to 620 or better.

While government-backed loans do set a credit score requirement, there are programs that are specifically catered to those with lower credit scores. Buyers can also get access to government-backed loans. Some FHA loans will accept buyers with scores as low as 500. If you’re considering an FHA loan, the property you are purchasing must be your primary residence.

That said, your loan application won’t be solely reviewed based on your credit situation. Lenders typically look at each element of an application, including:

  • Income to debt ratio.
  • Down payment amount.
  • If there are any collections on the borrower’s credit record.

What do you do if you have a bad credit score? Firstly, having cash for your down payment will be a huge help. The higher your down payment is, the more likely you will have a loan approved.

Secondly, you’ll need to be prepared to pay a higher interest rate. While many lenders will have products with lower credit score minimums, they will charge a higher interest rate because of the perceived investment risk.

While the conditions of a bad credit loan may not be ideal, it gives buyers the time they need to correct their score whilst living in a property they own. These buyers can then consider refinancing their loan once they have improved their score to access better loan terms.

If your score is below 500 or if you have a bankruptcy filing within the past two years, you probably won’t be able to get a home loan. If this is you, don’t stress. Instead, focus on the goal of improving your score by making regular payments on all debts, utilizing less than 30% of your credit, and not taking out any new lines of credit. When you take out a new line of credit, your report will be hit with a ‘hard inquiry, which will negatively impact your score.

Having bad credit doesn’t mean that buying a home is unachievable. However, it might mean that you and your mortgage broker need to work a little harder to find the right loan product. That’s why it’s crucial that you work with a highly experienced team who will provide credit guidance to put together a detailed mortgage application, and help you buy your home.

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