The score your lender will accept for a conventional loan can be determined by many factors, including your payment history, your salary history, your current wage, your available credit, the scores other lenders are accepting and the current economic climate. Cornett Communications advises that even in tight economic times, a score of at least 640 will get you in the door for financing.
Fannie Mae is one of two government-backed mortgage lending houses; Freddie Mac is he other. Independent lenders take many of their cues from what these two organizations do. According to the "Washington Post," Fannie Mae raised its minimum credit score for conventional loans in 2009 from 580 to 620. Even if you have a 20-percent down payment, you can be rejected if your score is below 620. Fannie Mae will also reject a loan if more than 45 percent of your income goes toward paying debt.
Home loans backed or financed by the Federal Housing Administration and the Veterans Administration have different views of credit scores. FHA recently changed its minimum credit score to 580, which qualifies you for lending programs that require only a 3.5 percent down payment. VA loans are 100-percent financed and set aside for active and retired military, along with their families. There is no minimum credit score to qualify, though a better credit score will get you a better interest rate.
In early October 2010, HUD imposed a 580+ minimum credit score for FHA mortgages with 3.5% down. While HUD technically will allow down to a 500 FICO with at leeast 10% down, I am not aware of any lenders actually originating and closing loans with that profile. Generally, someone with less than a 580 credit score will not meet the credit profile that is required today.
Your best option is to get a copy of your credit report and begin work on paying off your outstanding debt while not being late in the future.
It is unlikely you could be approved for mortgage financing with that credit score at this time.
Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website. http://www.consumer-action.org
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE. http://www.ftc.gov
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.
Only a lender who has looked at your complete file can say yes or no, but you will likely have a hard time. Generally most lenders will use the middle score to determine rates & programs. Right now there are few that are going as low as 565.
Your options are to wait for your credit to improve or take some action to help it improve faster. The most common steps to improve your credit score are to pay down you existing accounts to 1/3 their limits, dispute any derogatory information you can disprove and pay your bills on time. You can do these things yourself for very little cost or you can find a reliable credit repair company to help for a fee.