Credit score under 500
Credit score under 500 - "What can I do if my credit score is below
500", you may ask. Most lenders out there will not accept loans with
scores below 500. However, there is hope. Experienced mortgage brokers
work with hundreds and sometimes thousands of lenders throughout the
nation and work with lenders that specialize in these situations. An
experienced mortgage broker can help consult you on what you need to do
to increase your credit scores and get them back over 500, and they can
probably find a lender out there that can finance you even though your
score is below 500. There are programs out there that will average your
credit scores, use your high credit score, and only look at your
mortgage history and not your scores at all. Therefore, contact a
personal mortgage consultant to discover what your options are and to
map out a plan to improve your credit situation and get the financing
that you need.
Having a credit score under 500 means that you
will not qualify for a conventional mortgage refinance, however you may
qualify for a hard equity loan, so called because it is based on the
equity remaining in your home instead of your personal credit.
When your credit score is below 500 there can be
some serious issues. However if there is enough equity in the property,
you are sure to find a lender who will lend against it!
Something that I would advise anyone with a credit
score under 500 to consider would be legitimate, professional credit
repair. Good credit repair companies can often find flaws in the way
derogatory information is documented and reported and can often get it
removed. Consult with me for a more detailed description on what type
of professional service you need because you must beware, there are
many scams and ripoffs in credit repair.
Credit repair companies charge fee's that range
from hundreds to thousands of dollars. You will want to make sure you
choose a company that not only charges fair fee's but one that can
offer references and show past performance. Your mortgage broker should
be able to refer you to a good credit repair service.
Generally, you will have a hard time finding
financing above 70% of your homes value if your score is below 500.
This means that, if your home is worth $100,000, you will only be able
to get a loan for $70,000. This is a severe limitation for most people.
For that reason, it is usually best to try to bring your score up,
either on your own or through a credit repair company, before obtaining
When choosing a credit repair company, make sure
you find out if they have a limit to the number of accounts or bureaus
they target per month. You may be surprised to find out they only go
after 1 bureau per month and up to 5 derogs per letter. These services
will take the client forever to improve. Try to find companies without
limits like that
Applicants with credit scores below 500 may still
qualify for a mortgage if they have enough equity or a large down
payment. The lender will usually base their approval on the value of
Banks underwrite mortgage applications base on
three major criteria, credit scores, capability to repay the mortgage,
and equity in the property. With credit scores below 500, a loan
applicant must have positive compensating factors in other areas. In
other words, he needs to prove that he has high income relative to his
debts and that he has a bigger downpayment.
There are many lenders out there that will lend on
credit scores below 500. The value of your property in relation to what
you owe is an extremely large compensating factor with these lenders.
With sub 500 scores you are going to be limited to
very low Loan-to-value or LTV - meaning you will probably only get
60-65% ltv loan on your home. You will need quite a bit of equity to be
able to finance.
If we are unable to find financing for your
property and you do have enough equity in the home we may go through a
hard money lender which only looks at the equity in your home.
Mid 500 credit scores - There are many home loan
programs available out there for people with credit scores, or fico
scores, in the mid 500 range. The mid 500 range consists of credit
scores from anywhere between 530 and 570. Some of the programs that are
available for credit scores are listed throughout this page.
There are many loan programs for people with mid
500 scores that will allow you to purchase a home with as little as 10%
down. Some programs will even allow 90% financing all the way down to a
500 credit score. Loan programs in this niche change frequently, but
most will require a full documentation loan, that will require you to
prove your income, employment, and assets.
Most of these mid 500 score programs are designed
to be short term loans for borrowers. It allows them to get into a
home, get cash out, consolidate debt while waiting for their credit
scores to improve so that down the line they will be able to finance a
better rate/term loan.
There are benchmark scores that are important when
getting a loan. Some programs only become available at certain credit
scores. If your score is in the low 500's then chances are an interest
only payment is not an option. The same with 100% financing. Usually
the benchmark for 100% financing is at 580. However some lenders are
now requiring 600.
This is why working with a mortgage professional that uses the "rapid
rescore" technique is so important. Sometimes just doing a little
credit fixing can make or break your next loan.
Below 500 Refinance - If your credit score is
below 500, you may still be able to refinance your mortgage, pull cash
out, pay off debts, and help get your credit back up to where it should
be. However, you will need to have significant equity in your home,
from 30% to 50%.
If you are considering refinancing and have
significant collection accounts, you may want to contact your creditors
to see what payment is required to satisfy the debt. Having complete
contact information and payoff amounts will help your mortgage
professional find the best program for you.
For a typical refinance with credit scores below
500, equity can be calculated by dividing the balance of your first
mortgage by the value of your home. For example:
I owe $250,000 on my first mortgage. I believe my property would
appraise for $750,000. I get out my calculator and do the following:
First, I take $750,000 MINUS $250,000 EQUALS $500,000 - THIS IS MY
Then, (Equity) 500,000 DIVIDED BY 750,000 (Value of Home) EQUALS 0.66
Finally, I take 0.66 and MULTIPLY TIMES 100 to get 66% - MY EQUITY
So I have 66% equity in property, which is more than enough to qualify
for a mortgage refinance even with a credit score below 500. Try this
with your mortgage to see what your equity percentage is.
Having a credit score below 500 means that you
will not qualify for any conventional mortgage refinance. You need a
specialized program, from a specialist in below 500 credit score
refinance situations. If you need help, and believe you may have 30% or
more equity in your home, please contact us at 415-617-5448.
Credit Scores Below 500 mean that your credit can
not truly be considered when qualifying for your refinance. Lending
decisions for refinances belw 500 FICO scores are based on how much
equity you have in your home, the condition of the property, and the
value of the property.
When refinancing with a credit score below 500,
you should generally expect to receive a higher interest rate than you
would if your score was over 500. That means that most of the time,
your interest rate will actually increase from what you are currently
paying, however most refinances below 500 credit scores are Interest
Only, which may result in lower total monthly payments, especially if
you are currently in a forbearance or payment agreement with your
current lender or are paying off credit card and personal loan debt
Because mortgages for borrowers with credit scores
below 500 are based on the equity in the home they are refinancing, it
is customary for the lender or investor to require a real estate
agent's review of the property's most recent appraisal. This is often
referred to as a BPO, or Broker Price Opinion.
One of the biggest goals of refinancing for a
borrowers below a credit score of 500 should be taking the first step
to getting that credit score up above 500 or even 600 within 1 to 2
years. Consolidating certain debts, curing defaults and liens, and
actively engaging in credit repair can all help get your credit score
up from below 500 to a higher score, at which point you should consider
refinancing into a conventional mortgage with the lowest payments
Knowing exactly how much you owe is an important
aspect of succeeding in refinancing with a credit score under 500. The
only way to determine exactly how much you owe on our first mortgage is
to order a payoff from your current mortgage company. We can do this
for, at 415-617-5448
If mortgage delinquency has dropped your credit
scores below 500, don't worry you may still be able to refinance. No
matter how bad your mortgage credit, whether you are 30 days late or in
foreclosure, loans for borrowers with FICO scores under 500 for the
most part disregard your credit history and focus on using the equity
in your home to help you qualify for the refinance.
Certain programs for refinancing below a 500
credit score allow unlimited cash out (up to the maximum loan to value
ratio allowed). Cash out refinancing below 500 is very popular for debt
consolidation, however the cash may generally be used for any purpose.
Many consumers with credit scores below 500 not
only have a lot of delinquincies or late payments on many or most of
their bills, but they also will generally have numerous accounts that
have gone into collection status reporting on their credit report as
well. After you have looked into refinancing to try and get your
mortgage payment caught back up when your credit score is below 500,
you may even want to consider looking into bankruptcy or some other
debt management program if your other debt has gotten too out of
control and you have numerous collections that you feel you may never
be able to pay back on your own. Filing bankruptcy could potentially
help you to clean up your credit and start your credit fresh again.
This in turn could help you to increase your credit scores back up
quickly and substantially.