Fico Scores Below 500

Sometimes bad things happen to good people in unfortunate circumstances such as medical situations and family emergency's. During these tough times it's not uncommon to have some bills go unpaid and possibly even missed mortgage payments.

These events can have devastating effects on their credit profile as well and some people find themselves in a position where their credit scores have fallen below the 500 mark.

Individuals who have a FICO score below 500 will find that most mortgage company's are unable to help them. But there is hope.

Hard money lenders often base their lending decisions on the equity contained within the property versus the individuals credit scores and credit profile.

This can be a solution to some situations and it's important that the applicant explore all possiblities before making a final decision.

There are many companies who offer credit repair services for relatively low costs. In the end, any dollars you spend to make significant credit repairs will come back to you in the dollars you save month to month with your newly improved scores and available interest rates.

A good way to start is by getting a copy of your credit report. Many people have errors on their credit report, and these errors can have a negative impact on your credit score. By disputing these erroneous items, you could raise your score back up over 500, which is typically the minimum credit score you'll need to get a mortgage.

A good mortgage broker can offer advice and may even be willing to assist you with your credit and trying to improve your credit scores. There are many different factors involved with credit scoring that the average consumer is not aware of. By getting your credit score back over 500, the door will be opened to be able to use many more lenders than with a credit score below 500.

You may also want to ask you mortgage broker if they have a Mortgage Only program. Even though you may have below 500 credit scores, with a good mortgage payment history you may be able to refinance and pay off some of the negative debt on your credit report.

If you do find yourself needing to get a mortgage loan with a credit score under 500 you will probably be seeking a hard money source. Most good mortgage brokers have access to these sources. With hard money you can expect to be charged an interest rate anywhere from 5 to 10 points above the prevailing rate. You also will probably have to pay several points to originate the loan. If you find yourself in a situation where you need to get such a loan always try to get one with no pre-payment penalty so that you can refinance out of it just as soon as your credit situation improves.

Lenders who are able to help with sub 500 scores are called equity based lenders. Hard money lenders are only one type of equity based lenders. Portfolio lenders is another type. Although hard money lenders can also be portfolio lenders. Portfolio lenders just means they lend their own money and usually keep the loan in house instead of selling the note. Most of the equity based lenders are not score driven at all. These types of lenders also help with foreclosure bailouts.

Another program available for refinances is the family deed transfer program. This program is a unique program used for refinances when you have sub 500 scores. If you have a family member with good credit you can deed the property to them for 12 months. If at the end of the 12 months you can show where you made the payments through canceled checks and they have been on time, you will be able to refinance back into your name.

Even if you have 2 out of 3 credit scores under 500, there are a few lenders that will take the average of all 3 credit scores to do the loan for you. For example, if you have a 485, a 490 and a 525, this will give you a 500 average score and these lenders will use that score to determine your eligibility for the loan. This is in contrast to the most common way of using the 3 credit scores, which is simply to use the middle of the 3 scores, or the lower of 2 when there are only 2 scores available.
There are also lenders known as "Hard Money Lenders" that do not underwrite mortgage loans based on credit scores but more based on the amount of equity in the property. Hard Money Loans are generally supposed to be short term loans and come with much higher interest rates and fees than more conventional type loans, due to amount of risk involved.

A good broker will take the time to assist you in repairing your credit. If you have the flexibility to be patient, then your broker should see that helping you now will turn into a deal a few months down the line. Some credit repairs are as simple as fixing errors that may appear on your account. However, some credit repair can take upwards of 6 months if new accounts must be added, or even longer depending on the severity of past delinquincies.

If your credit score is below 500, you can still qualify for a mortgage if you have equity in your home. As a rule of thumb, 30 to 40% equity will be required for you to qualify.

A FICO score below 500 only applies to a small percentage of people. You can still get a loan but you will be charge a higher rate. Try to improve your credit by paying on time, reducing your debt and checking your credit report for errors.

If you have a fico score below 500, it is a good idea to review your credit with a mortgage professional. There may be some errors you can correct with the credit bureau. Improving your credit rating will greatly improve your chances of qualifying for loan terms you can afford.

» DISCLAIMER: The information contained in this article on 'Fico Scores Below 500' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.