I want to buy a home. My credit score is near 500. I make $60k annually. Do I qualify for a FHA loan?

Question

Other than someone telling me to clear my credit (easier said than done) is it wise to buy into a credit line to re-establish?

Answer 1

My husband and I financed our home with an FHA loan last year, and our scores were not the best when we started the loan process (Husbands were in the 500's, mine low 600's).

Basically, they made us clean up everything on our credit before giving us final approval.  Luckily we built our home so we had about 6 months to do this.  

If I were you I would start now, before you apply.  Pull a copy of all 3 of your credit reports and go through them with a fine toothed comb.  Dispute any negative info, and call any collection agencies to work out payment plans and stick to them. Get all of the bad stuff off of your report, or at least paid off, and pay credit cards down as low as you possibly can (under 10% is best).

I know it's overwhelming at first, but trust me, when they hand you the keys to your new home you're going to be so glad you worked hard to fix your credit.  Plus, imagine how awesome it's going to feel to know that you can qualify for almost any loan or credit card you want.  You can do it!!!

P.S.- If you need help getting started with fixing your credit, check this site out- it's free and has helped me tremendously:

http://ficoforums.myfico.com

Answer 2

FHA Refinance and Mortgage Fact #2

Credit Problems and a HUD Housing Loan

It is advisable to approach any FHA loan with your best possible credit rating. If you have had credit problems in the past, the FHA recommends a Consumer Credit Counseling program to avoid being denied an FHA loan. A good credit counselor can talk to you about income-to-debt ratio, maintaining satisfactory payments and challenging errors on your credit report. The FHA recommends creating a satisfactory payment history for at least one year before applying for any FHA loan program.

About that credit score...

"A person's calculated FICO score may range on a scale from approximately 300 to 850. The higher one's FICO score is the better his /her standing to avail of loans or credits. The median FICO score is around 720, FICO scores higher than 725 are considered good while those which are below 600 are considered bad. FICO scores that range from 750 to 850 are excellent scores which tells of his/her creditworthiness and would enable the individual to be granted credit or loans almost immediately by finance firms or banks. 660 to 749 are good FICO scores that would entitle the individual to credits or loans with certain conditions and with limits as to the amount of money they can use from these institutions. Fair FICO scores of 620 to 659 are regarded with much consideration since these are not good digits based on the FICO score scale. Poorer scores that range from 350 to 619, may be sufficient for finance firms to deny the applicants credit or loans."

In all honesty, you may want to buy a house, but it seems like it isn't a good idea. Even IF you could get a loan, the interest would be high, based on that score, and that means you would get less home... yet pay premium rates... fix things first, it may not be what you want to hear, but it is the prudent thing to do.

People buying more than they could afford is part of the housing finance issue we have today.

Answer 3

Most likely you would not qualify for FHA.  You would need to be able to explain why credit score is so low, and what you are doing to rectify things.  Plus, you would have to give reasonable assurance that you are "mending your ways."

You could not be approved with automated underwriting.  It would take a manual underwriting system to approve you. Your credit issues will be reflected in higher interest rate and higher cost for mortgage insurance.  500 - 520 is about the lowest credit score we can do with manual underwriting, at the present time.)

Answer 4

That's rough.  Perhaps a year ago you could get a home loan, but as a result of so many lenders giving so many loans to those with low credit, we have a mortgage and foreclosure crisis right now in the US.  Even back when mortgages were being given out to almost anyone, it was probably still nearly impossible to get a loan with a score that low.  And frankly, you have to work hard to get a credit score as low as 500.  

How soon are you planning on applying for mortgages?  I would say it's a near impossibility if you're planning on applying within the next 6 months.  If you currently have credit cards or loans, make the payments on time every month.  Try to get your balances down  to 30% or less of your credit limits.

If you don't have any credit cards or loans, try to get a secured credit card or a secured loan.  Local Credit Unions can often help with obtaining secured credit cards/loans... this is also good because you'll be establishing a relationship with a Credit Union and they may be able to help you out down the road with a mortgage.

Answer 5

NO!!!

Answer 6

With that low of a credit score, I don't see how.   The banks are now overly cautious from all the foreclosues from unconventional loan practices.  This has left them in a state more freaked out by bad credit then a hypochrondriac surrounded by lepers.      

i.e. Washington Mutal today just today announced it lost 8.9 billion just in the last quarter.

http://biz.yahoo.com/ap/080722/earns_wac...