Here’s the good news: most lenders don’t have a minimum credit score to apply for a loan. Now, here’s the bad news: most lenders will use your credit score to judge you, anyway. For better or worse, your credit score is the metric used to evaluate what kind of financial risk you are. They are the rules we all have to play by, regardless of how fair this system is. After all, if you have less than good credit, it can sting to hear that you’ve been deemed as “untrustworthy” despite being a personally trustworthy person. It’s a loaded word. Unfortunately, there are no lines of credit available based on the content of your character alone and awarded on a merit based system, but you can still game the system to work for you.
If you’ve been saving for a downpayment, you can probably sense that the time to take advantage of our country’s current economic situation is fast approaching. You may be chomping at the bit – and who wouldn’t be? For the record, the best strategy to improve your chances of getting approved by a lender is to take the necessary steps to improve your credit over time. But, I get it. Why wait? Don’t let me stop you. Thankfully, there’s plenty of opportunities for mortgages, loans, and lines of credit to help you along your real estate journey at non-traditional lenders. There are ways to finance your home outside of a bank. See if any of these qualify for your situation:
Federal Housing Administration (FHA) Loans: The minimum credit score required is 500 and only requires 3.5% down. This website also connects you to a loan calculator that may help you see if this line of credit works for you. This is one of the more popular loans due to its leniency with credit scores and being geared towards first time home buyers purchasing a primary residence.
Non QM-Loans: Non-Qualified Mortgage loans are a bit like the wild west, so if you’re feeling like an investment cowboy, this may be the route for you. They’re widely varied, most requiring non-traditional documentation to represent your financial life and of course, a ton of flexibility around credit scores. And if you’re thinking “hey, weren’t these things what caused the housing crisis of 2008?” you wouldn’t be wrong, but if getting a loan and securing a home is your main goal and you have a smart strategy for repayment, this is a risk you may want to take.
USDA Loans: With a minimum credit score of 620, if you’re looking to move to a rural area, this may be the loan for you. The U.S. Department of Agriculture is looking to incentivize people to move to rural areas of America and this loan will hopefully make that possible. You can see if you qualify via the linked website. You can also input information about where you’re looking to buy, how much you’re looking to spend, and a bit about your financial history to see what opportunities are available to you via the USDA.
VA Loans: The good thing about loans through Veterans Affairs is that there’s less risk to lenders because these loans are backed by a government agency. You’ll need a certificate of eligibility and a recommended credit score of at least 580 though the VA doesn’t have a set minimum requirement with qualifying credit. Additionally, they don’t require you to have any secured downpayment. It should be noted that this loan only applies to veterans, active military service members, or spouses of military personnel who died in service.
The next avenue to pursue when it comes to sourcing lines of credit for your real estate investment is to pursue loans that are specific to you. So, how the VA loan is to help veterans and military service members, there is likely a means of financial support available for you that compliment your unique situation. As an example, I’ve sourced a few of them, but by all means search “your occupation + home loan” on Google and see what comes up. You’ll be surprised.
1099 Only Mortgage: For loans up to $3 million, the 1099 only mortgage is designed to help freelancers, independent contractors, and self-employed workers. The gig economy is here to stay, at least for now, and this mortgage loan uses bank statements instead of tax returns to evaluate you as a borrower. Operating as a freelancer can complicate your life financially; even though you’re financially stable, traditional institutions may be less empathetic to you managing your personal equity like a business (because it is), but the 1099 only mortgage? They get it.
Medical Professionals Home Loan: American Heritage Credit Union offers a home loan for all different types of medical professionals. Their website boasts flexibility with qualifications and encourages buyers who are just starting out to inquire about their home loans. Seeing as medical professionals are rightly lauded as the heroes of the pandemic, it’s good to see support coming through from larger institutions to support them.
None of these loans are completely without risk. A lot of them have higher interest rates so that these institutions can protect themselves, so there’s always a few cons to take into account with all of these pros. Ultimately, there is no magic button that will fix your bad credit situation, only smart people – like yourself – who hopefully enter real estate investment with a long-term strategy and manageable short-term goals. A less than ideal credit score isn’t the end of your investment journey. You can McGuyver the perfect mortgage for you out of several surprising lenders that few others know about. I believe in you, and I hope this article helps you believe in you, too.