A credit score is a financial instrument which is used by every lender to determine if a person is eligible for a home financing loan or not. The credit scores are generated by the credit history of a person, and the scores are categorized by timely repayment of debt or not. The credit score spectrum is
- 700 to 850= Excellent credit score
- 680 to 699= Good credit score
- 620 to 679= Average credit score
- 580 to 619= Low credit score
- 500 to 579= Poor credit score
- 300 to 499= Bad credit score
The conventional home loans are given by numerous banks and mortgage lenders, but these loans are easily given to homebuyers who have a good credit score. People with low or poor credit score can still obtain these loans, but they have to make substantial down payment and agree to pay high-interest rate to lessen the risk of the lenders.
People who wish to become homeowners even with low or poor credit scores have option of government-backed low credit home loans where they only have to make small down payment and interest rates when compared with standard loan. But the potential homebuyers should show the reason which caused their low credit score and also show that they have a stable job and healthy earning and can manage the monthly scheduled mortgage payments.
The government assisted FHA (Federal Housing Administration) loans, VA (Veteran Affairs) loans, USDA (United States Department of Agriculture) all come under low credit home loans. In FHA loans a person has to pay 3.5% as down payment while there is no need of any down payments in VA and USDA loans.
The interest rates in FHA, VA, and USDA loans are also low as compared to conventional loans.