Understand that a 600 credit score will not bring you reasonable mortgage offers. While you may have an option or two, you will not find a choice that mirrors the home loan rates you read about. You might find a lender willing to offer you a mortgage if you can strongly defend the circumstances that caused your depressed credit score. Your best option, in these circumstances, is an FHA loan.
Evolving Mortgage Market
Until around 2007, a 600 credit score offered numerous mortgage options. While none had excellent rates and terms, many were affordable, at least in the short-term -- two to five years. Even a 620 credit score brought loan offers close to the best terms available. With the real estate and mortgage "crash," loan qualification rules have tightened considerably. Few good mortgage options are now available if your score is this low.
Significance of a 600 Credit Score
For other borrowing purposes, like credit cards, 600 is considered fair, at best. For mortgage loans, 600 is below most current qualification criteria. While you might find a mortgage loan, you should consider it as a temporary, short-term option, since the terms will only be marginally affordable. If you use this option as your own personal "bail-out" program, you should immediately dedicate yourself to improving your credit score.
Best Available Mortgages
The best potential option for a mortgage with a 600 credit score is through a loan insured by the FHA, or Federal Housing Administration. Although the FHA does not directly make mortgage loans, they do guarantee the loans of approved lenders. Your 600 credit score won't be welcomed by the FHA, but these are among the few mortgages not strongly based on a minimum credit score. The FHA looks at your entire situation before making a decision. Should you have good supporting information -- steady employment, good reasons for having some credit issues, some savings dollars, and other compensating factors -- you might be approved for a low fixed- or adjustable-rate mortgage.
The Cost of a Mortgage
If you can find a mortgage with a 600 credit score, it will be significantly more expensive than a minimum 675 score. The best rates and terms are offered to those with 720 to 850 credit scores. Mortgage options for those with 600 credit scores come with interest rates often 2 to 3 percent higher than the best published rates. For example, a $200,000 mortgage might cost you up to $400 more per month and over $100,000 more interest over the life of the mortgage.
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