How You Can Get a Mortgage With a 550 FICO Score

Mortgage credit remains extremely tight, even as the economy continues to recover from the recent housing crisis and recession. About 90% of mortgages originated in 2013 went to borrowers with FICO credit scores of 660 or higher — about 60% of all mortgage borrowers had a credit score greater than 720, according to a recent report from the Urban Institute.

Most lenders aren’t considering consumers with FICO scores of 550, but Carrington Mortgage Services just announced a new loan program that caters to them. The California-based lender announced its FHA 203k Full renovation loan on April 14, which allows qualified borrowers with a minimum FICO score of 550 to take out a single loan to finance a home’s purchase and renovation costs.

The Full loan amount requires a professional appraisal of what the home will be worth after repairs (structural improvements, including room additions), and the maximum repair-cost part of the loan is limited to 50% of the appraisal.

“There’s a huge market there: 1 out of 3 prospective borrowers — U.S. citizens — has a FICO score that’s less than 650,” said Ray Brousseau, Carrington’s executive vice president of mortgage lending. According to FICO’s latest analysis of score distribution, about 20% of consumers fall in-between 550 and 650. Brousseau said a lot of the people in that third of sub-650 consumers are first-time homebuyers. “A lot of first-time homebuyers are looking for proverbial fixer-uppers.”

Brousseau said Carrington is able to serve this population by having a person underwrite the mortgages, rather than putting an application through an automatic underwriting process.

“You can have a history of having had problems, but we need to be able to see that these problems are largely behind you,” Brousseau said. “We have to understand what happened, and that the prognosis is good looking forward.”

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The Carrington FHA 203k Full loans carry interest rates in the 4% to 6% range, depending on the applicant’s credit standing, Brousseau said. They’re all qualified mortgages, meaning there are many requirements for that loan, including a proven ability to repay the debt.

Carrington Mortgage Services is licensed to lend in 47 states. Before applying for any mortgage, it’s crucial to review your credit reports and scores. Even if your credit isn’t great, understanding your credit history and being able to explain it to a lender can go a long way in accelerating the loan-approval process. You can check two of your credit scores for free on Credit.com to see where you stand.