Mortgage with 580 Credit Score

Getting a Mortgage with 580 Credit Score with FHA, VA, and non-QM mortgage is absolutely possible.

But, just because you’re at 580 credit score, this doesn’t mean you’re automatically approved.

Getting a mortgage is more than just a credit score.

You need to work with a lender that allows low credit. This is because most “big-box”, or mainstream lenders require 620+ credit score.

You’ll need to have established employment/income. Your debt-to-income ratio will be closely reviewed and considered just like with any mortgage.

Here in today’s post we get into specifics for each option for getting a mortgage with 580 credit score in order to set you up to accomplish your home ownership goals.

FHA Mortgage with 580 Credit Score

An FHA loan is a government backed mortgage that is extremely popular if you have less than perfect credit.

These can be done on home purchase, refinance, and cash out refinance.

FHA actually allows you to have as low as 500 score, although most big lenders don’t do them below 620 score.

If you have 580 middle credit score you can do as low as 3.5% down payment on a home purchase.

For a cash out refinance you can go up to 80% loan-to-value ratio.

Example: If your home is worth 200,000, you can refinance up to 160,000 loan amount when doing cash out to pay off debt, do home improvements, etc.

FHA Loan | Highlights

Home Purchase – 580+ credit score allows for 3.5% down payment, <580 credit score will require a 10% down payment
Refinance – Cash out refinance up to 80% loan to value ratio
Only allowed on primary residence. No vacation home or investment property
3 year waiting period from recent foreclosure or short sale
2 year waiting period from chapter 7 bankruptcy

VA Mortgage with 580 Credit Score

If you’re a veteran of the US armed forces, thank you for your service to our country. I always do my very best to get my fellow veterans approved (USMC – 2004-2008).

VA will actually allow for as low as 500 credit score in some cases. So if you’re at 580 credit score, you have a good shot at approval (depending on what is hurting your credit).

One thing that the VA guidelines are strict about is housing payment history. If you have any late housing payments in the last 12 months, things tend to get tricky.

With a VA loan, eligible veterans are able to put 0% down on home purchase, and in many cases can get up to 100% loan to value on an a refinance. Cash out refinance up to 90% loan to value ratio.

You’ll want to check to make sure you’re eligible based on when you served, and what type of discharge you received. Check eligibility here.

The biggest myth about VA loans is that you can only use your VA loan once. That is absolutely not the case.

Your VA home loan benefit is a lifetime benefit that can be used an unlimited number of times (just not all at the same time). When you sell your home or refinance your home, the entitlement is restored. Your lender works with the VA to get that taken care of.

VA Loan | Highlights

As low as 0% down payment
Up to 100% loan to value on refinance
Cash out refinance up to 90% loan to value
Primary residence only
Can be used an unlimited number of times as long as entitlement is restored
2 year waiting period from chapter 7 bankruptcy
2 year waiting period from recent foreclosure and short sale

Check rates here.

Non-QM Mortgage with 580 Credit Score

A non-QM mortgage is an alternative loan type available to get you approved if you don’t meet FHA or VA guidelines.

These are also commonly called portfolio loans.

Non-QM loans are what you might think of as “outside-the-box” loans. More of a common sense approach to mortgage approval than traditional loans. These are allowed on primary residence, vacation home, and investment property.

These are particularly interesting because there is no waiting period on recent credit event (like foreclosure or bankruptcy).

If you have sufficient down payment (or equity) you can apply as soon as 1 day out of recent foreclosure or bankruptcy.

Non-QM loans are available as low as 500 credit score.

They are meant to be a short term fix for short term circumstances (although they are available on 30 year fixed if needed). Typically once you are eligible for traditional financing, you’d refinance out of the non-QM mortgage in order to get a lower rate.

These loans are often a strong solution to get a fresh start. An opportunity to accomplish your home ownership goals when most lenders say it’s not possible.

Non-QM Loan | Highlights

No waiting period after recent bankruptcy or foreclosure
580 credit score down to 500 is allowed
Available on purchase, refinance, and cash out refinance
Okay on primary residence, second home, and investment property
Alternative income documentation approval considered

In Summary

Getting approved for a mortgage with a 580 credit score is absolutely possible. Here is a quick recap on how-to:

FHA Mortgage – At 580 credit score you can do as little as 3.5% down payment on home purchase. Up to 96.5% loan to value on refinance.
VA Mortgage – Eligible veterans of the United States armed foreces can do as little as 0% down on home purchase. Up to 100% loan to value ratio on refinance.
Non-QM Mortgage – Available if you do not meet FHA or VA guidelines. At 580 credit score, 80% loan to value on home purchase and refinance

The most important thing you can possibly do is work with a lender that is highly experienced with these types of loans who allow low credit.

Just because you have been told by a big lender that you’re not eligible doesn’t mean there aren’t other options worth looking into. It may just be that they have an overlay that doesn’t allow them to go below a certain score.