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Buying a home is an exciting milestone in life. But having less-than-perfect credit can make financing a mortgage difficult. If your credit score is around 600, you may be wondering if homeownership is possible.
The good news is that yes, you can get approved for a home loan with a credit score of 600. While it presents some challenges, a 600 credit score does not have to be a dealbreaker. With the right loan program and strategy, you can still achieve your dream of owning a home
In this comprehensive guide, we will explain everything you need to know about getting a mortgage with a 600 credit score. Here’s what we’ll cover:
- What credit score is needed to buy a house
- How a 600 credit score affects mortgage rates
- Types of loans for a 600 credit score
- Tips for improving your credit score
- Alternatives if you can’t qualify for a traditional mortgage
What Credit Score Do You Need To Buy A House?
When applying for a home loan, your credit score is one of the main factors lenders evaluate. This three-digit number gives insight into your creditworthiness and loan default risk.
Here is a quick rundown of the minimum scores needed for popular mortgage programs
- Conventional loans – 620 minimum credit score
- FHA loans – 500 minimum credit score
- VA loans – No official minimum but most lenders want at least 580
- USDA loans – Typically 640 minimum credit score
As you can see, a credit score of 600 falls below the minimum for conventional loans but meets the requirements for an FHA loan.
While it may technically qualify, a 600 credit score is considered fair or poor by both the FICO and VantageScore models. So you can expect to face some challenges compared to buyers with scores of 700 and above.
How A 600 Credit Score Affects Mortgage Rates
One of the biggest impacts of having a lower 600 credit score is that you will likely pay a higher mortgage interest rate. Lenders view borrowers with lower scores as riskier and will charge “risk-based” fees.
For every 10-20 points lower on your credit score, expect your mortgage rate to increase by around 0.25%. So while buyers with 700+ scores may see rates around 5%, you will probably pay 5.5-6% or more with a score of 600.
Over the life of a 30-year fixed-rate mortgage, that higher interest rate really adds up. For example, on a $250,000 loan amount:
- 5.0% rate – $1,342 monthly payment and $215,610 total interest
- 6.0% rate – $1,498 monthly payment and $277,704 total interest
As you can see, the higher rate costs over $60,000 more in interest charges over 30 years. And it adds $156 to the monthly mortgage payment.
The takeaway here is that a higher credit score directly translates to lower rates and monthly payments. So if time permits, work on improving your score before applying for a mortgage.
Types Of Loans For A 600 Credit Score
While a conventional loan is likely off the table you do have options for financing a home purchase with a 600 credit score.
Government-backed loans from the FHA, VA, and USDA are designed with more flexibility for lower credit borrowers. Here is an overview of programs you may qualify for:
FHA Loans
FHA loans are backed by the Federal Housing Administration and are one of the most popular options for buyers with credit scores between 500-579.
The minimum down payment is just 3.5% and can be gifted by family members. And FHA allows higher debt-to-income ratios than conventional loans. There is also no minimum length of employment requirement.
The big tradeoff is that you will pay an upfront mortgage insurance premium of 1.75% of the loan amount plus an annual premium based on your LTV ratio and loan term. On a $250,000 loan, that upfront fee works out to $4,375.
Our recommendation is to refinance into a conventional loan once you gain 20% home equity. This allows you to eliminate mortgage insurance and likely secure a lower rate.
VA Loans
VA loans are an excellent option for military families. There is no defined minimum credit score, but most lenders look for at least 580. ** VA loans require no down payment** and no monthly mortgage insurance.
Closing costs can be rolled into the loan amount, making these mortgages very affordable for buyers on a budget. You will pay a one-time VA funding fee of 2.3-3.6% of the loan amount unless you receive a disability exemption.
Obtaining a Certificate of Eligibility is simple through any lender. VA loans give active duty buyers tremendous home buying power with less-than-perfect credit.
USDA Loans
For low-income buyers in rural areas, USDA loans offer 100% financing with no down payment. Each lender sets their own minimum credit score, but many accept scores between 640-660.
You will pay an upfront guarantee fee of 1% and annual mortgage insurance around 0.35-1.0% of the loan amount. Income and home location limits apply to receive a USDA-backed mortgage.
Non-QM Loans
If you don’t fit the mold for a government-backed loan, another option is a non-qualified mortgage (Non-QM). These programs offer more flexible underwriting guidelines for self-employed borrowers or those with variable income sources.
Most Non-QM lenders want to see at least a 580 credit score. You can expect to make a 10-20% down payment and pay a higher rate due to the added risk. A Non-QM loan allows you to leverage substantial assets or high income to offset a lower credit score.
Tips For Improving Your Credit Score
While clearly possible, buying a home with a 600 credit score comes with financial implications. You will pay more in mortgage insurance premiums and interest charges over the long run.
Boosting your score into the good to excellent range (670+) can make a big difference in loan qualification and your interest rate.
Here are some tips for improving your credit score before applying for a mortgage:
- Pay all bills on time – Set up autopay if needed
- Pay down credit card balances below 30% of limits
- Avoid new credit lines and hard inquiries
- Remove any errors on your credit reports
- Become an authorized user on a family member’s account
- Enroll in credit monitoring to catch issues early
- Consider a credit-builder loan if you need to establish positive history
With diligence and patience, it is realistic to improve your credit score 50-100 points or more within 6-12 months. This can potentially save you thousands of dollars over the life of your mortgage.
Alternatives If You Can’t Qualify For A Mortgage
For some borrowers, rapidly improving credit scores in a short timeframe may not be feasible. If you exhaust all options and cannot qualify for a traditional mortgage, there are still paths to homeownership.
Here are two alternatives to consider:
Rent-To-Own Agreement
Also known as a lease-to-own arrangement, this allows you to rent a home for 1-3 years with the option to purchase. You work on repairing your credit during the rental period. When ready, you already have an agreement in place to buy the home.
Rent is usually slightly higher than market rates, with a portion going toward a future down payment. Make sure to get a detailed contract drafted by a real estate attorney.
Buy With A Co-Signer
Asking a family member with good credit to co-sign on the mortgage can help you meet eligibility requirements. Their income, assets, and credit history will factor into the application.
Make sure your co-signer understands they are equally responsible for the monthly mortgage payments. If you default, it will impact their credit too. Set clear expectations upfront about financial obligations.
Wrapping Up
A credit score of 600 might seem disqualifying for a mortgage, but many options exist. Government-backed loans can offer easier approval, and you may qualify for other specialized programs.
The most prudent approach is taking 6-12 months to boost your score before applying. This allows you to secure better loan terms and interest rates, saving substantially over the long run.
With determination and an informed mortgage strategy, the dream of homeownership can absolutely still become reality – even with less-than-ideal credit!
What types of loans can I get with a 600 credit score?
You will not be able to qualify for a conventional loan with a credit score of 600: They require a minimum score of 620. However, there are other options to consider:
- FHA loans: Federal Housing Administration loans have more flexible qualifying standards. With a 600 credit score, this type of loan is likely your best bet — and you could qualify to put down just 3.5 percent of the home’s purchase price.
- VA loans: If you’re an eligible service member, veteran or military spouse, VA loans could be an option. While lenders typically prefer a credit score of at least 620 for these, they technically have no minimum credit score requirement, so you may still qualify if the rest of your finances are in good shape.
- USDA loans: United States Department of Agriculture loans typically require at least a 640 to qualify, but there is no blanket minimum requirement. However, there are specific income limits and the home you buy must be in a qualifying rural area.
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600 Credit Score Mortgage Options
FAQ
Can I get a loan for a house with a 600 credit score?
How much can you get approved for with a 600 credit score?
What credit score is needed to buy a $300K house?
Can you buy a house with a 620 credit score?
Is 600 a bad credit score?
Most borrowers tend to ask, “Is 600 credit score good or bad?” A credit rating of 600 isn’t good. In fact, it’s not even fair. Instead, a 600 credit score is considered “bad.” This score will make it difficult to be approved for a decent line of credit or loan and can prevent you from landing certain jobs or renting an apartment.
Can I buy a house with a 600 credit score?
Within an FHA loan, however, lenders can raise the bar within these requirements, when it comes to salary, down payment, and various other ingredients. In addition to overall approval, these factors will also affect interest rates, so it’s best to be above 600 in this scenario. Anything over 600 is a good credit score to buy a house.
How bad is a 600 credit score?
Rather, a 600 credit score is actually considered “bad,” according to the standard 300 to 850 credit-score scale. Such a score will make it difficult to get approved for a decent loan or line of credit and could even prevent you from renting an apartment or landing certain jobs.