Can I Buy a House With a 545 Credit Score?

Buying a house is an exciting milestone in life. However your credit score plays a crucial role in determining if you can get approved for a mortgage. So what are your chances of buying a home if your credit score is 545?

Yes, you might be able to buy a house with a credit score of 545 if certain things are true. It will be hard, though, and you’ll probably have to pay more in interest.

In this comprehensive guide, we’ll explain everything you need to know about buying a home with bad credit, including:

• What credit score is considered bad for a mortgage
• Your mortgage options with a low credit score
• Tips to improve your credit score
• Alternatives if you can’t get approved

What Credit Score is Considered Bad for a Mortgage?

Most conventional mortgages require a minimum credit score of 620. So anything below 620 is generally considered poor credit in the mortgage world.

Here’s a quick overview of how credit scores impact mortgage rates

• 760+ = Excellent credit – Qualify for the very best rates
• 700-759 = Good credit – Still considered good rates
• 620-699 = Fair credit – Pay slightly higher rates
• 580-619 = Poor credit – Will be difficult to get approved
• 500-579 = Very poor credit – Hard to get approved, but possible

According to mortgage data site HSH. com, it will be very hard for people with credit scores below 580 to get approved. A lot of lenders won’t even look at people with scores this low.

Having a credit score of 545 is definitely very bad and will make it hard to get a mortgage. But it’s not impossible if you know what you’re doing.

Mortgage Options for Low Credit Scores

If your credit score is 545, here are some mortgage programs that may approve you:

FHA Loans

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration.

Minimum Credit Score: 500

Down Payment: At least 10% down

FHA loans are one of the few options available if your credit is below 580. But you’ll need to put down a larger down payment of at least 10%. With a higher score above 580, your down payment can be as low as 3.5%.

You’ll also pay an upfront mortgage insurance premium and higher interest rates. But FHA loans can be a lifeline for buyers with poor credit.

VA Loans

VA loans are backed by the Department of Veterans Affairs and available to military members and veterans.

Minimum Credit Score: No minimum

Down Payment: None required

VA loans don’t have an official minimum credit score. So applicants with scores as low as 545 may be accepted, especially if you have served in the military before.

You can qualify for 100% financing and no down payment. But your interest rate will still be higher than buyers with better scores.

USDA Loans

For low-income buyers in rural areas, USDA loans offer 100% financing and flexible credit requirements.

Minimum Credit Score: No minimum

Down Payment: None required

Like VA loans, USDA loans don’t advertise a minimum score. And you can get approved without a down payment. They can be a good option for buyers with bad credit in eligible rural locations.

Subprime Lenders

There are also some specialized subprime lenders that work with bad credit borrowers. They offer non-conforming mortgages to applicants well below the normal credit requirements.

But these subprime loans come with big trade-offs:

• Sky-high interest rates
• Large upfront fees
• Prepayment penalties

So subprime lending should only be considered as an absolute last resort. You’ll end up paying thousands more over the life of the mortgage.

Tips to Improve Your Credit Score

The best way to get approved for a mortgage with bad credit is to spend time improving your score before you apply. Here are some tips:

Pay Down Balances

One quick way to boost your score is lowering your credit utilization ratio. Try paying down balances on credit cards and loans.

Dispute Errors

It’s common for credit reports to have incorrect information dragging down your score. Dispute any errors you find on your credit report.

Become an Authorized User

Ask a family member with good credit to add you as an authorized user on a credit card. This can help build your score.

Limit New Credit

Each hard inquiry and new account can dent your score a little bit. Try to limit new credit applications until after you close on a mortgage.

Make Payments On Time

Payment history is typically the biggest factor in your score. Be sure to pay all your bills on time going forward. Setting up autopay can help.

With diligent credit repair, it may be possible to improve your score above 580 within 6-12 months. This will open up better mortgage opportunities with lower rates.

Alternatives if You Can’t Get Approved

If improving your credit enough is unlikely before you need to buy, here are some alternatives to explore:

• Rent for longer – Renting isn’t throwing away money. Give yourself more time to boost your credit score.

• Find a co-signer – Ask a family member with excellent credit to co-sign your mortgage to help you qualify.

• Save a larger down payment – A down payment of 20% or more can sometimes offset credit issues.

• Consider owner financing – Find a private seller willing to finance the sale themselves.

• Purchase a less expensive home – Smaller loan amounts are easier to qualify for.

• Buy as a cash buyer – Save up to pay all cash and avoid the credit requirements.

While buying a house with a 545 credit score is challenging, it’s not impossible. With an FHA loan, VA loan, or other specialized mortgage, it can be in reach under the right circumstances. But improving your credit should be a priority to secure a better mortgage rate and more financing options.