650 Credit Score: What Home Loan Can I Get?
17 MIN READ
Published July 07, 2023 | Updated February 08, 2024
A credit score of 650 is considered fair by FICO, so there’s still room for improvement. While it does meet the minimum requirements of most lenders for mortgage loans, you’ll still be able to qualify for FHA loans, VA loans, and several other programs available to help you become a homeowner.
Most borrowers understand that you need a good credit score to qualify for a home loan because it shows lenders that you are more likely to pay your loan on time. This is why lenders have a minimum credit score requirement.
Every lender is different, and whether you’ll qualify for a home loan with a 650 credit score will depend on a number of other factors. Read on to learn more about home loans, credit score requirements, and qualifying for assistance programs.
Credit Score Requirements for Home Loans
When you apply for a home loan, the lender will look at your credit score and credit history to determine if you are eligible for the loan. But that’s not the only thing they’ll look at to determine if you can take on mortgage debt. They’ll also look at your income, job stability, and other factors, such as your debt-to-income ratio.
Understanding Credit Scores and Home Loans
A credit score of 650 is considered to be fair credit, so it is likely that you’ll be able to qualify for most home loans. But the terms and interest rates you’ll be offered may not be the best. A score range of 670 to 739 is considered to be good, while scores above 800 are exceptional.
You’ll still be able to qualify for conventional, subprime, USDA, VA, and FHA mortgages with a credit score of 650. But if you can get your score to over 680 through credit repair, you may be able to qualify for better rates and more favorable terms.
Tips for Improving Chances of Approval
To improve your chances of getting a home loan with a credit score of 650, you’ll have to consider your entire profile, including your debt-to-income ratio, your employment, and your income, to prove your creditworthiness. Some ways to improve your profile are by reducing your debt, improving your DTI ratio, and increasing your income.
Paying Off Debts and Bills on Time
As you prepare for your home application, you may be able to improve your credit score and credit profile within six months to a year. Taking the steps listed below may help you qualify for lower interest rates so you can save thousands over the life of your home loan.
- Pay off your debts to improve your DTI ratio. If you have significant credit card debt, take steps to clear your outstanding balances.
- If you can’t pay off your entire credit card balance, try to lower your usage to improve your credit utilization rate. Don’t use any more than 35% of your credit limit.
- Avoid taking on any new credit before you apply for a mortgage.
- Pay all your bills before the due date to avoid late payments.
- Check your credit reports to spot inaccuracies. If you find any errors, report them to get them corrected.
- Search for the best credit repair companies online, and see how they can help you improve your credit score above 650.
FHA Loans with 650 Credit Score
One way of getting a home loan with a credit score of 650 is through FHA Loans. These loans benefit borrowers who have low credit scores, those who are underwater on their existing mortgages, and those who spend a large portion of their income on housing.
Overview of FHA Loans
FHA loans are considered to be less risky by lenders because they are insured, so it’s easier to qualify for them. You’ll need a credit score of at least 580 if you want to qualify for a loan from the Federal Housing Administration with a down payment of 3.5%. If you are willing to put a down payment of 10% or more, there’s no minimum credit score requirement, but lenders may have their own requirements that you’ll have to qualify.
One thing to keep in mind is that with FHA loans, you’ll need to pay insurance for the entire duration of the loan. You’ll need to pay the insurance fee at closing and pay the monthly insurance payments, which might make the mortgage a little expensive in some cases.
Competitive and Low-Interest Home Loans
Each lender has different credit score requirements when evaluating mortgage applicants to see if they’ll be able to make mortgage payments. They also consider many other factors. If your credit score is near the lender's minimum requirements, they may ask for a larger down payment or charge a high-interest rate. That said, there are several competitive and affordable home loans with a 650 credit score available.
These are the top three mortgage lenders in the U.S. currently offering mortgages to borrowers with credit scores of 650.
Minimum Credit Score- 580
Minimum Down Payment- 3.5%
Minimum Credit Score- 580
Minimum Down Payment- 3.5%
Minimum Credit Score- 620
Minimum Down Payment- 3.5%
Finding Trusted and Reliable Home Loans
Buying a home is a major life decision and one that requires a lot of planning and research. Before applying for a home loan, take your time to learn more about your current credit score, your budget, and your requirements. Look into home loan options that meet your needs and compare them to see which offers you the best terms and interest rates.
Researching Lenders and Reviews
Other than comparing loan options, it is also important to research lenders you’ve shortlisted thoroughly. You want to work with a lender that has good reviews and a track record of helping homebuyers find the right loan product. Ensure that they have good customer support and are prompt at answering questions.
To find a lender you can trust, it is best to check the company's reviews thoroughly. Read full reviews and ensure the company has high ratings. You can find reviews of the lender on Google, Yelp, and TrustPilot, among other places. Additionally, you should also check to ensure that the lender is accredited by the Better Business Bureau and has good reviews there.
Home Loans for First-Time Homebuyers
If you’re purchasing a home for the first time, there are several programs that can help you make your dream of home ownership a reality. These programs can help you get a better mortgage rate or qualify for a lower down payment. Interest rates have increased substantially in the last few years, and housing prices continue to be high. But with some of these programs, home ownership can become a little more affordable.
Programs and Assistance for First-Time Homebuyers
The federal government has several programs for first-time homebuyers. Many of these can have special eligibility requirements such as the type and location of property or borrower criteria such as military services.
Here are a few government mortgage loans and assistance programs that can help first-time home buyers:
- FHA Loan- Borrowers can qualify with a credit score of 580 and a 3.5% down payment.
- HomePath Program- Fannie Mae’s HomePath program allows eligible first-time buyers to purchase a foreclosed home and receive assistance of up to 3% for closing costs.
- Forgivable Down-Payment Loans- Many participating lenders offer forgivable 0% loans that act as a second mortgage. This means that after a specified number of years, you won’t have to pay back the loan.
- Down Payment Savings Match- State-level housing finance agencies also offer Individual Development Accounts through which they contribute $3 for every $1 you save.
- Down Payment Grants- Down Payment grants are usually given to borrowers with low incomes. The program comes with several requirements, such as maximum property price and minimum credit score.
Home Loans for Veterans
If you are a veteran looking for home loans with a 650 credit score, there are several options available for you to explore. For veterans, the easiest and most effective option is to apply for a VA home loan.
VA Home Loans
VA home loans are insured by the Department of Veterans Affairs and can be a smart choice for veterans. If you meet the eligibility requirements, you’ll be able to get a home loan even with a lower credit score and without a down payment. VA loans finance 100% of the purchase price without having to pay the mortgage insurance. You’ll have to pay a funding fee, which is a one-time cost.
Home Loans for Minorities
Homeownership rates can vary widely based on race and ethnic group. In White Americans, homeownership rates were 72.1%, while for Hispanic Americans, the rate was 51.1%. When compared to white consumers, people of color face several challenges in getting approved for a home loan. Fortunately, there are several special programs specifically geared toward addressing these challenges.
Special Programs for Minority Homebuyers
The Hispanic Wealth Project by the National Association of Hispanic Real Estate Professionals has taken initiatives to support sustainable home ownership. Some mortgage lenders have also expanded their mortgage programs to make homeownership easier for minority communities. lenders like Chase, TD Bank, and Bank of America are working to help minority homebuyers through lender credits, loans without down payment requirements, and grants.
Home Loans for Recent College Graduates
If you have just graduated, you may only have a part-time job while in college. Qualifying for a home loan or any other type of loan may be challenging. Instead of proof of past employment, you may be able to offer college transcripts for two years. But you’ll have to show that you are currently employed full-time. Additionally, you’ll also need to show that your income can be relied upon for at least three years after you purchase your home.
Programs and Assistance for Recent College Graduates
FHA loan is probably the best home loan with a 650 credit score for recent college graduates because it only requires a 3.5% down payment. If you have student loans, check if you are eligible for debt forgiveness or payment deferment to reduce your debt load.
Getting out of debt can increase your chances of qualifying for a loan because it improves your debt-to-income ratio.
You can also continue to pay your loans in a timely manner to build credit, or if you're struggling with credit cards, be sure to research ways to build credit without a credit card.
Another option is to check with lenders that offer special loan products for graduates. Some lenders may offer a reduction in origination fees or closing cost assistance.
Quick and Easy Home Loans with a 650 Credit Score
If you’re looking for ease of application, automation, and convenience, online mortgage companies are your best bet. Some of them might even offer competitive rates, so you may be able to save more money compared to conventional loans. Some online lenders also specialize in a niche, such as first-time homebuyers, so there’s always something available for everyone. Get a free credit report from the three major credit bureaus- Transunion, Experian, and Equifax before you apply for pre-approval.
Online Lenders and Pre-Approval
Getting pre-approved with an online lender can be easy and fast if you’re organized. You’ll need to fill out the application and provide supporting documents, such as:
- Tax returns
- Income statements
- W2s for the last two years
- Employment history
- Monthly income
- Monthly expenses
- Total secured and unsecured debts
- Declaration if you’ve had any defaults or foreclosures
The lender will then provide you with an estimate of how much you qualify. Preapprovals are typically valid for up to 60 days, so it is best to apply for them when you are about to start viewing homes.
Finding the Best and Top-Rated Home Loans
To find the best home loans with a 650 credit score, you’ll need to compare lenders as well as the loan products. The process for choosing a mortgage lender is the same whether you are looking for a conventional lender or an online lender. Borrowers that explore their options may be able to get better rates.
Researching and Comparing Lenders
Here are a few things to keep in mind when comparing lenders:
- Take into account the APR and interest rates offered by different lenders.
- Compare closing costs as well as other fees and loan terms.
- Think about the loan features that are the most important to you and then compare lenders side-by-side based on those features.
- Read lender reviews and call lenders to ask for their interest rates or fees.
- Look for borrower qualifications, mortgage discounts, or any special features offered, like rate match guarantees.
Home Loan Interest Rates with a 650 Credit Score
The interest rate you’ll qualify for with a credit score of 650 will vary depending on a number of factors, such as the type of mortgage you’re applying for and the lender. Typically, you’ll qualify for a lower interest rate with a higher credit score. It is also important to understand the difference between the interest rate for a loan and its Annual Percentage Rate (APR).
Understanding Interest Rates and APR
The interest rate of a loan is the cost that you’ll pay to borrow funds each year. This is expressed as a percentage and does not reflect any other charges or fees. The APR of a loan is the total cost of the loan that reflects the interest rate, fees, points, broker fees, and other charges involved in getting the loan.
The APR is higher than the interest rate. When comparing the APRs of adjustable-rate loans, remember that they will not reflect the loan’s maximum interest rate. You also won’t get an accurate overview of the total cost of the loan if you compare the APRs of adjustable-rate loans with fixed-rate loans.
Home Loans for Single Parents
Raising children and paying the bills is rough for single parents. The cost of buying a house on top of it may feel like an impossible task. Having two incomes makes it easier to buy a property, but there are several assistance programs available to help you. Many states offer subsidies or programs for those buying in rural areas, low-income buyers, and first-time homebuyers. While these are not specifically for single parents, they are still available and accessible if you qualify for them.
Assistance Programs for Single Parents
Single dads and moms that fall into the category of low-income or moderate-income buyers may be eligible for assistance programs listed below:
- Good Neighbor Next Door is a program helping those who are firefighters, law enforcement officials, emergency medical technicians, and teachers. If you qualify, you can enjoy 50% off the list price if you purchase through the HUD.
- Habitat for Humanity operates in all 50 states, and eligible participants may get help building their own homes from qualified volunteers.
- The Housing Choice Voucher Program offers qualified public housing residents a chance to become a homeowner through the local HUD program.
- Every state also has closing costs and down payment assistance programs to help single parents purchase homes.
Home Loans for Self-Employed Individuals
If you are self-employed and want to get a mortgage with a 650 credit score, you’ll need to fill out the same type of application as regular buyers. Lenders will take the same things into consideration, such as your credit score, income, assets, and personal and business debt. The only thing to keep in mind is that you’ll need to provide the required documents to demonstrate that you have a stable income, which can be difficult when you don’t have a regular paycheck.
Alternative Income Verification Options
To qualify for a mortgage as a self-employed individual, you’ll need to demonstrate a history of two years of uninterrupted income. Here are some documents that a lender may request:
- List of current clients
- Membership in a professional organization
- DBA- Doing Business As
- Business Insurance
- Business License
- Bank statements
- Profit and loss statements, including Schedule C, K1, or Form 1120S
- Personal tax returns
- W2s if you are getting paid through a corporation
Home Loans for Rural Areas
Finding the right lender to work with will be important if you are purchasing a home in a rural area. Not all lenders may service rural areas. You can still get a USDA home loan that is designed to help low- and moderate-income buyers purchasing homes in rural areas.
USDA Home Loans
A USDA home loan is guaranteed by the Rural Development Guaranteed Housing Loan Program, a part of the USDA. These are mortgages with zero down payments for those purchasing properties in eligible rural areas and towns. USDA loans have lower interest rates compared to traditional mortgages.
In 2022, the interest rates for loans issued by the USDA were set at 3.75%. These loans also don’t require you to pay for private mortgage insurance.
Home Loans for Seniors
Many seniors and retirees are interested in downsizing, tapping into their equity, or purchasing a vacation home. But those who are retired and on social security may find it difficult to meet the eligibility requirements for home loans. You’ll likely need to provide extra documents to demonstrate your income sources to qualify. Other than your social security, lenders may also consider other income sources such as rental income, investment income, long-term disability, child support, and alimony.
Reverse mortgages are specifically designed for those who are retired. Reverse mortgages allow you to tap into the equity of your home through monthly payments. The interest is deferred until the loan matures. The balance owed on the property increases, and the equity decreases over time. Only those who are 62 years of age or older can qualify for a reverse mortgage. They might not be the right fit for everyone, but there are other alternatives available such as cash-out refinance, home equity loans, and home equity lines of credit.
Home Loans for Low-Income Individuals
Those with low incomes may face many obstacles on their way to homeownership. Saving for a down payment is not easy. If you have bad credit, it may impact your ability to borrow. There are several loan programs that can help if you qualify for them.
One such program is offered by the Neighborhood Assistance Corporation of America, which offers mortgages at low rates to low-income borrowers. If you qualify, you won’t need to pay any closing costs or down payment.
HUD’s Section 184 Indian Home Loan Guarantee Program
The Section 184 Indian Home Loan Guarantee Program by HUD is a home loan specifically designed for Alaska Native and American Indian families. Borrowers qualifying for this program can purchase a home with flexible underwriting and a low down payment. The loans can be used on and off native lands. They can be used to refinance, purchase an existing home, or for new construction.
Having a place of your own to call home is the ultimate dream. For many borrowers, it may be far from reach because of affordability issues, low credit scores, or other common obstacles. Fortunately, there is a wealth of resources and programs to look into to be one step closer to realizing your dream.
To improve your chances of qualifying for a home loan with a credit score of 650, reduce your debt load. If you have considerable debt, look into debt relief options, such as those offered by TurboDebt. Take benefit of our free consultation to see how we can help you find the right debt relief option for your individual needs.