Can I Buy a House With a 606 Credit Score?

A 606 credit score is considered fair, but it doesn’t necessarily prevent you from buying a house. While securing a mortgage with this score can present challenges, various loan options and strategic financial planning can make homeownership possible. Understanding specific mortgage program requirements and addressing other aspects of your financial profile can significantly improve your chances.

Understanding Credit Scores for Home Buying

A credit score is a numerical representation of your creditworthiness, summarizing your financial history and how reliably you manage debt. Lenders use these scores to evaluate the risk associated with lending you money for a mortgage. Higher scores indicate lower risk, often leading to more favorable interest rates and loan terms. Conversely, a lower score suggests a higher perceived risk.

The most widely used credit scoring models, such as FICO, typically range from 300 to 850. A score of 606 generally falls into the “fair” category. While an excellent score might be above 800 and a good score typically starts around 670, a fair score indicates areas for improvement in your credit profile. Mortgage lenders usually obtain FICO scores from all three major credit bureaus—Equifax, Experian, and TransUnion—to determine eligibility and interest rates.

Mortgage Options for Lower Credit Scores

Individuals with credit scores around 606 have several mortgage options more accessible than conventional loans. These programs typically feature flexible credit requirements.

Federal Housing Administration (FHA) Loans

Federal Housing Administration (FHA) loans are a common choice for borrowers with lower credit scores. The FHA does not directly issue loans but insures them, reducing risk for private lenders and allowing more lenient terms. With a 606 credit score, you may qualify for an FHA loan with a minimum down payment of 3.5% of the purchase price. FHA loans require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP can often be financed into the loan, and the annual MIP is paid monthly.

VA Loans

For eligible service members, veterans, and their spouses, VA loans, guaranteed by the U.S. Department of Veterans Affairs, offer significant benefits. These loans typically do not require a down payment and do not have ongoing mortgage insurance premiums. VA loans generally have flexible credit requirements, though individual lenders may impose their own minimum credit score requirements.

USDA Loans

The U.S. Department of Agriculture (USDA) offers loans for properties in eligible rural areas. USDA loans also feature no down payment requirements for qualified borrowers. While the USDA does not set a minimum credit score, most lenders prefer a score of at least 640 for streamlined processing. However, some lenders may approve scores below 640, potentially requiring manual underwriting.

Conventional Loans

While conventional loans are typically for borrowers with higher credit scores, generally 620 or above, some lenders might consider applicants with a 606 score. This usually requires a larger down payment or may come with higher interest rates. Conventional loans are not government-insured, and if your down payment is less than 20% of the home’s value, private mortgage insurance (PMI) is typically required.

Beyond the Credit Score: Other Factors

While a credit score is important, it is only one component lenders consider when evaluating a mortgage application. Other financial factors provide a more complete picture of your ability to repay a loan.

Debt-to-Income (DTI) Ratio

Your debt-to-income (DTI) ratio represents the percentage of your gross monthly income that goes towards debt payments. Lenders assess DTI to determine if you can comfortably afford your mortgage payments in addition to existing debts. While acceptable DTI limits vary by loan program and lender, a common guideline is around 43% for FHA loans.

Down Payment

The size of your down payment plays a role in your mortgage application. A larger down payment reduces the loan amount, lowers your loan-to-value (LTV) ratio, and decreases the lender’s risk. Even with a lower credit score, a substantial down payment can make your application more appealing.

Employment History

Lenders examine your employment history to confirm a stable income source. They generally look for a consistent two-year work history, though exceptions can be made for recent graduates or those with explainable employment gaps. Documentation such as W-2s, 1099s, and pay stubs are typically required to verify income.

Assets and Reserves

Having sufficient assets and reserves demonstrates financial stability. This includes funds for closing costs and additional savings to cover unexpected homeownership expenses or maintain payments in case of a temporary income disruption.

Steps to Improve Your Chances

To strengthen your mortgage application with a 606 credit score, take proactive steps to improve your financial standing.

Review Your Credit Report

Obtain and review your credit report from all three major bureaus. Federal law allows you to dispute any inaccurate or incomplete information found on your report. Correcting errors can potentially boost your credit score.

Reduce Existing Debt

Focus on reducing existing debt, especially high-interest balances like credit cards. Lowering your credit utilization ratio, the amount of credit you are using compared to your total available credit, can positively impact your score. Keeping utilization below 30% is generally recommended, as it signals responsible credit management.

Save for a Larger Down Payment

Saving for a larger down payment than the minimum required can make your application more attractive, as it reduces the loan amount and perceived risk. It also leads to lower monthly payments and potentially lower interest costs over the life of the loan.

Avoid New Debt

Avoid taking on new debt or opening new credit accounts in the months leading up to and during the mortgage application process. New credit inquiries can temporarily lower your credit score and signal increased financial risk.

Seek Professional Guidance

Consider getting pre-approved for a mortgage before actively searching for a home. Pre-approval provides a clear understanding of how much you can borrow and helps identify potential issues with your financial profile early on. Working with a mortgage lender or broker experienced in FHA, VA, or USDA loans can be beneficial, as they can guide you through the specific requirements and options available for borrowers with fair credit scores.