Are you MortgageReady?

Mortgage lenders, lending houses and specialized loans

Like everything else, there are good lenders and bad lenders, and everything in-between. This section will eventually grow to hold small and mid sized lenders across the country, specialized agencies which assist in first time and specialized home buying areas and pros from Florida and beyond. Like everything we do when dealing with the public trust, someone here has to look into each category and vet the companies to make sure they aren't low-rent, dirt-bag shysters and sleazy operators. Uh, at least I think that's the technical jargon for it.

Learn your rights & all the industry wrongs

FHA Mortgage Loan

FHA loans (Federal Housing Administration) managed by an agency under the jurisdiction of the Department of Housing and Urban Development. FHA loans are insured by the FHA, which means that the organization protects your loss if you default on the mortgage.

FHA loans are available with low down cash options and those who have lower minimum credit scores, but the buyer is obligated to purchase mortgage insurance. Low down payment and lax credit requirements make FHA loans attractive for first-time home buyers.

Most lenders offer FHA loans starting at around the 580 credit score. If your score is 580 or higher, you only need to put 3.5% down which is always a good thing in terms of cash up front. For those with lower credit scores, say between the piss poor 500 and 550 range, it might still be feasible to qualify for an FHA loan. But a greater percentage on cash money will likely be required. How much exactly depends on the bank that picks up the note, but you best believe it wont be 3%. As the score goes lower and lower it becomes harder and harder to find a bank willing to lend to such a credit prospect. The FHA mortgage loans are slated as Loan Level Pricing Adjustments which is a fancy boring way to say their is no risk pricing involved. What the big language there means is that a consumer with a low score (piss poor and shitty scores) aren't hit with a higher interest rate as a result of it. So there is a silver lining even if it's paper thin.

At a glance: low credit score loans

definitely not the best of the best, but not the worse of the worst

*metrics subject to change. Latest date updated 2020

Mortgage Type

Non-qualified (Non-QM) Mortgages

Fannie Mae Home Ready

Freddie Mac Home Possible

Conventional Loans


FHA Loan

Required Score Range






500 (with 10% down)

580 (with 3.5% down)

For Applicants

unqualified conventional or government-backed loan

Low- to moderate-income borrowers

Low- to moderate-income borrowers

Borrowers with moderate to good credit

Rural home buyers

Borrowers with credit scores from 500-620

USDA Home Mortgage Loan

The United States Department of Agriculture does more than rubber stamp steaks and chicken gizzards, apparently they are also in the Mortgage Loan racket, er, business. Popular with the populace, USDA loans feature zero down payment and pretty low rates. Not dirt low, but decently low. The score needs to be a little better than the lowest 580 score (USDA requires a min score of 640) though keep in mind lenders like to change their minds from time to time and this is subject to change. USDA Mortgages are backed by the US Dept. of Agriculture which has a stated goal of increasing home ownership in rural areas via this incentivization. Not all rural areas are rural, some suburbs qualify but you need to talk to your mortgage pro because we aren't it. The bad is that if you make too much green, the USDA loan won't go your way. Too much green is slated as 15% higher than the median income of the area in question. The good is the USDA loan comes with a lifetime supply of free steaks, chops and ham hocks… okay it doesn't, but if one has to move to Galveston Texas to take advantage of this loan, it damn well should.

VA Mortgage Loan

VA loans are mortgage loans offered to veterans, service members, and some eligible spouses or other military-affiliated borrowers.

With backing from the Department of Veterans Affairs, these loans do not require a down payment, nor any ongoing mortgage insurance payments. They also typically have the lowest interest rates on the market, so whoever said serving your country was bad is obviously not right on top of which they are ungrateful bastards who care nothing for the sacrifice of others, but I digress.

Technically speaking, credit score requirements for VA loans are non existent but most banks who will pick up the note will likely insist on a minimum of 580. While the 580 score is the bottom rung, no mortgage pro worth his or her salt will ever suggest this and will try to get you to at least 620. Another big plus is that VA loan applicants can get the same interest rates as the well to do high credit borrowers. This is always nice to see, especially for those individuals that risk their lives daily so we can smoke cigarettes and swill beer and talk political nonsense from the safety of our non combat zone homes.

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Understanding the credit score

The credit score is perhaps the most misunderstood tool of finance lending. Like the crash landing at Roswell and why women are smarter than men, no one really knows the truth of it, but thankfully everyone has an opinion (note the sarcasm and let's move on). Scores are mathematical equations which take certain facts into its determination. Payment history, age of credit history (given as an average), utilization (how much you use) and the absence of derogatory items (can be anything from late history to charge offs and collections) determine where your score lands, how it moves around and what type of interest you are charged.

High risk consumers, those who have either poor credit due to little history, number of accounts, re-payment history or mishaps that happen more often than not like missing multiple payments, are hit with the algorithm full blast. The score will be a poor one. Not all poor scores are the result of charge offs and collections, this is just one facet of it. Most people have a very marginal understanding of scores and scoring, some think its too hard like say, Chinese algebra or painting by numbers. And some, afraid of learning because it looks too hard, ignore it and play Xbox all night while they hit the bong and eat Fritos. We don't judge, but we are Dorito fan's personally.

Scoring looks difficult and that's because the wonderful minds that put the score into motion DESIGNED it that way. No one knows much about them, and while we can predict how they will act some of the time, no one can predict what they will actually do most of the time. This is the point of it. If you are the intrepid soul who likes to put their mind to it, feel free to waste a decade of your life trying. We won't tell you not to. But the way a score is designed to work is for the bank and not necessarily you, the consumer.

Scores are not static and they aren't one size fits all. Each score is different for each person because each person's situation is different.

One person can get approved to buy a house with a 620 score and 20 open revolving accounts from credit cards to Bob's World of Funny Hats and Argyle Socks and another who has 2 revolving accounts and a perfect history of on time payments can be denied outright. Other aspects fall into the equation. Age of credit, or how long a person has had credit, is really important to a bank. One could have an 800 score with 1 year age of credit history and the likelihood of a bank approving that person to buy a pencil are about as on par that Fred Astaire's ghost will show up in your bedroom and show you how to do tap dance the Charleston. Could happen, just not very likely. Banks like people with a history. And that history doesn't have to be all good.

Scores are designed to be difficult to maintain indefinitely in the higher brackets, that is the point, and the constant hoop jumping is enough to make you sick of the industry, but it isn't likely to change anytime soon. Because of this, no one will have a perfect 850 score, 10 high balance credit cards, a mortgage, a decent car, a decent wife and two charmingly ungrateful kids and a somewhat passable mistress and expect their credit standing to be stiff as a sailors third leg in a Bangkok whorehouse. Nonsense.

The failure is built into it, because banks make money from people with low scores not high ones. And the high score is only good for a big purchase at a lower interest rate. That's it.

Understanding the score is only important when you want to make a big purchase, like a home or an RV with a big kitchen. It isn't meant to be sustained over the long run, but with the proper usage, timely payments and careful use, a credit score can always be available as a means to use money which you do not have, and pay it back at an interest rate that won't give you premature gray hair. So when you want to learn how a score works kindly visit the score people (FICO) and take some notes. In the real world, a score is put in place by a risk management company to assist a lending and finance institution determine a persons worth as it pertains to lending and interest. Which is fine if what you want is a credit card or a car loan that isn't going to scalp you alive, beat you unconscious and then ride your carcass down the hill like a toboggan.

Conventional Mortgage Loan

The type of loan feared by most people with bad credit and some people with good credit. The conventional loan is not government backed or subsidized. It doesn't have the low income or low credit score having consumer in mind and is not the best choice for first time home buyers looking for a break. A conventional mortgage loan charges a higher interest rate for low credit applicants and does for the first time home buyer what Roseanne Barr does for the all you can eat buffet. Fannie Mae and Freddie Mac (who the hell comes up with these names eh?), are the agencies that oversee and administer conventional mortgage loans. Fees they charge are known as Low Level Price Adjustments (read: more boring lender lingo) and are based in part on the Loan To Value between home value and credit score. Since scores fluctuate more for poor credit applicants, this is likely to either increase their monthly payments over the life of the loan.

Many lenders will require potential applicants of conventional loans to have a credit score of 620 or higher to qualify. Not the best bet one can go with but while it would seem far more dangerous to slather oneself in teriyaki sauce and dive into a pool of chicken wings and John Goodman's house, at the end of the day Goodman won't eat you alive, and these higher mortgage payments will.

Fannie Mae HomeReady® Mortgage Loan

Released in December 2015, HomeReady® is a great Fannie Mae loan program for low- to moderate-income borrowers, with expanded eligibility for financing homes in low-income communities (I.E. poor and working class neighborhoods)

Unlike Freddie’s HomePossible® program, you don’t have to be a first-time homebuyer to qualify for HomeReady®.

Along with its 3% minimum down payment requirement, this loan type has another attractive feature: Underwriting can include income from other people in your household, regardless of their credit history, which is always a plus. Rather than basing your DTI only on your monthly income and your co-borrower’s income, the DTI ratio can include the income of your slacker roommates, adult children who can't seem to leave the nest and keep you up at night playing Twisted Sister Albums on vinyl, or the ever popular ungrateful parents who happen to live and bicker with you about the TV shows you watch, eat your food and criticize your friends.

Most lenders require a minimum credit score of 620 to qualify for HomeReady® and most lenders won't budge, but like Freddy Mac down there, it could be worse, and it really isn't.

Freddie Mac HomePossible® Mortgage Loan

Released in March 2015, Freddie Mac’s first-time home buyer program, HomePossible®, is helping buyers get into homes with a very low down payment and moderate credit. that's the official line, in reality it reads very much like the VA loan, except you don't have to be a vet to take advantage of it. HomePossible® is available for low and moderate-income borrowers and allows for a down payment of just 3% of the total value. To qualify for the HomePossible® loan with reduced private mortgage insurance (PMI) rates, most lenders will require a 620 or better credit score. Talk to your pro, see what he or she has to say and then do what you have to do.

There are worse options out there but this doesn't seem to be it.

Non-Qualified Mortgage Loan

Remember way back when the bubble burst and the housing market took a free fall nose dive into the pit of consumer hell? No? Well then you're one lucky mofo millennial, because for the rest of us we remember quite vividly. Those that didn't lose their homes, saw the market value of their neighborhoods plummet when half the houses were vacated and turned into the friendly crack or trap houses complete with gun ports and diamond plate. Think Detroit but at a national level. A neighborhood of vacant houses does for a suburb what Wal-Mart does for a suburb. Only Walmart is open 24/7 and lets you browse the DVD movies for hours and try on wigs while you run around the store pretending to be Liza Minelli. Don't know who Liza Minelli is either? How about Bob Hope? Ronald Reagan? Don Knotts? George Carlin? Peter Pan? Porky Pig? Donald Duck? Alf? You damn millennials are so boned. You'll never now the genius of Monty Python or Mel Brooks. Anyway, I digress.

The Qualified Mortgage Rule, also known as the QM Rule, went into effect in 2014 which was too late to bail out all those hundreds of thousands of people who bought houses they couldn't afford to pay, especially with those inflating mortgage payments, but lucky you it keeps people who can't afford payments from assuming loans and then defaulting on them... sort of. The requirements of the QM loans are set by the federal government, and we know how good the federal government is about safeguarding the financial well being of its citizens while maintaining the sanctity of future generations (this is what sarcasm looks like). These rules are designed to create safer loans by prohibiting or limiting certain high-risk mortgage products. This is why higher scores, a cash down payment and mortgage insurance is required.

Still, QM loans can be attained with a low 500 score but again this is lender dependent and most like the higher credit score. Higher scores mean a less likelihood of default. But who the hell knows. If the government is overseeing it, there is still a high likelihood that somewhere down the line another bubble will burst and another couple million people will get shafted with a rhino schlong. But what can I tell you, I get paid in donuts and coffee to write these sections up. It's not like I'm a Congressman or anything, but one can always hope.

Debt to Income Ratio & the 43% rule explained

Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income. You don't have to be good at math, but it helps. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.

To calculate your DTI, add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out (don't you just love learning tax code?

It's about as much fun as putting together Ikea particle board furniture with a butter knife).  According to the Consumer Finance Protection Bureau/Gov: "evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified Mortgage". A consumer is likely to still get a loan if the 43% rule is exceeded. After all this is America, land of bullshit banks and irresponsible regulations. But for the love of Pete make an effort at making your payments on time. The American dream may be fast fading, but home ownership is the sanctity of all humans and the place to engage in the holiest of rituals: watching football on the large screen while noshing loaded nachos.