Getting a mortgage for a new home can be an anxious time for most people, but especially so for first-time home buyers who have not been through the process before. During the application process the lender will ask to see financial documentation of your income, expenses, other debt and the appraisal on the home you wish to buy. The lender will also examine your credit report and credit score, both of which play a large role in whether you obtain a mortgage.
TL;DR (Too Long; Didn't Read)
It is possible to get a mortgage with a credit score of 594.
Credit Report and Credit Score
A credit score is a number between 300 and 850 that rates the contents of your credit report. It is a measure of your creditworthiness. A higher number indicates you are a better credit risk while a lower number indicates you might be at risk for default on credit lines.
Your credit report contains information about your bill payment history such as whether you make on-time payments and whether you pay your bills in full each month. Your credit report also contains information about loan defaults, bankruptcies, or whether any bankruptcy of yours has resulted in dismissal, where you have been unable to meet the terms of the bankruptcy, or discharged, meaning that you have met the terms.
Credit Score Interpretation
On the 300 to 850 scale, a credit score above 740 means you have excellent credit and should have no trouble getting a loan. A score between 670 to 739 reflects good credit and that your credit profile is attractive to lenders. When your score is between 580 and 669 your risk assessment is average.
Lenders may ask you to clarify certain information in your credit report. A score between 580 and 669 tells a lender you are a higher risk for a loan and not entitled to the best rates. A score below 579 means you are a poor credit risk and will likely be turned down for a mortgage. With a credit score of 594, you will most likely qualify for a mortgage unless you are unemployed and have no financial means to pay off the loan.
Very Low Credit Scores and Mortgage Approval
Individuals with credit scores as low as 500 can still qualify for a mortgage, though this option is relatively rare. Some lenders specialize in issuing credit to people who are at high risk for defaulting on the loan.
These lenders will charge interest rates that are higher than those for people with average to excellent credit. High-risk borrowers will also have to provide additional financial data such as recent pay stubs, W-2 forms and references to secure a mortgage.
Tips for Boosting Your Credit Score
While there are no quick ways to boost your credit score, you can show a lender you are serious about establishing good credit. Over the next year, pay all your bills on time and make sure you are paying the full amount of each monthly obligation.
Lenders are greatly concerned about the amount of debt you carry. Pay down your debt, including car and student loans and do not open up any new lines of credit. While these tactics may not be enough to boost your score to "average" or "good" credit status, it may be enough for a lender to consider you for a mortgage.
Lisa Nielsen is a marketing consultant for small businesses and start-ups. As part of her consultancy, she writes advertising copy, newsletters, speeches, website content and marketing collateral for small and medium-sized businesses. She has been writing for more than 20 years. She is also a business strategist, trainer and executive coach. Nielsen holds a Master of Business Administration from the University of Miami.