Q: Can I get a home loan with a credit score of 600?
A: While the short answer to your question is "yes," there's a bit of a longer one you'll need to consider. If you asked your question as recently as six months ago, the answer would have been "probably not."
The good news
First, the good news: as refinancing activity continues to dry up, lenders have been forced to start to consider borrowers with weaker credit scores if they want to continue to keep their business flowing.
No Fannie, Freddie
Then, the less-good news: Since Fannie Mae and Freddie Mac continue to have more rigid underwriting standards in place -- they won't purchase loans with FICO scores below 620 -- your choices of both lender and mortgage product will be more limited. At the moment, loans for people with weaker credit are pretty much limited to lenders who can write FHA-backed loans and the products available from them.
Adding to the less-good news is that, while the FHA program is theoretically open to borrowers with scores as low as FICO 580, many lenders apply "add-ons" to these minimum standards, so that the loans they originate are less likely to fail. If a lender is responsible for too many failed loans, the lender can lose authorization to do business with the FHA.
Writing loans at FICO 600
Many, many lenders still have restrictions in place and won't write FHA-backed loans unless you have a FICO 620 or even higher.
However, some lenders -- and some prominent ones, such as Wells Fargo -- will write FHA loans at a FICO-600 level. There are probably others in your market that are doing the same. Interest rates and fees will vary from lender to lender, so it's worth your time to shop around -- first to see who might be able to help you, and second to evaluate their offerings.
FHA mortgage requirements
For all that, when you do find a FHA lender and loan which works for you, you will have access to some of the lowest mortgage rates available in the market, and at some of the lowest down payment requirements, too.
However, you'll be required to buy into the FHA self-insuring mortgage insurance pool, which will cost you 1.75 percent of the loan amount up front (which can be financed) and regular, annual premiums of a little over 1 percent of the loan amount each year.
So the answer is "yes"; it won't necessarily be fast, easy or cheap, but it can be done.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.