Can You Buy a House with a 567 Credit Score?

You’re sitting at the closing table, ready to sign the dotted line on the house of your dreams. Everything’s in place—your down payment, the loan documents, and yet, you’re nervous because you’ve heard a 567 credit score isn’t ideal. Could it all fall apart now? This is the kind of anxiety that many homebuyers with lower credit scores face. But here’s the twist: buying a house with a 567 credit score is possible, albeit with a few caveats.

Let’s start with a stark reality check. A credit score of 567 falls into the “poor” category on the FICO scale, which ranges from 300 to 850. Lenders typically view this score as a red flag—an indicator of high risk. But don’t let that discourage you just yet. There are ways to navigate around this obstacle and land that home you’ve been eyeing.

How Mortgage Lenders View a 567 Credit Score

To understand your options, it’s crucial to get inside the mind of a lender. Lenders assess credit scores as part of their risk evaluation when approving mortgages. A score of 567 tells them that you’ve likely missed payments in the past, have a high debt-to-income ratio, or both. This doesn’t mean you’re out of the game, but it does mean you’ll be viewed with more scrutiny. You may face higher interest rates, larger down payments, or stricter loan terms.

Take FHA loans, for example. These government-backed loans are designed for buyers with less-than-perfect credit. You can qualify for an FHA loan with a 567 credit score—but you’ll need to make a larger down payment, typically around 10%. Compare that to someone with a higher score, who might only need to put down 3.5%.

Mortgage Options for Buyers with a 567 Credit Score

So, what are your mortgage options? Here are the most common ones:

• FHA Loans: Backed by the Federal Housing Administration, these loans are popular among buyers with lower credit scores. If your credit score is 567, you can still qualify—but you’ll need to meet other criteria like a steady employment history and a manageable debt-to-income ratio.
• VA Loans: If you’re a veteran or active-duty service member, a VA loan could be your best option. VA loans don’t require a minimum credit score, although lenders often impose their own requirements. With a 567 credit score, you might still qualify for a VA loan, especially if your income and financial history are strong.
• Subprime Loans: These are designed for borrowers with bad credit. The catch? Higher interest rates and fees. If you go down this road, make sure to read the fine print carefully and understand the long-term implications of a high-interest mortgage.

What You’ll Need for Approval

Here’s where things get strategic. If you have a 567 credit score, the game isn’t over, but you’ll need to work harder to get approved. Lenders will look at more than just your credit score; they’ll also evaluate your:

1. Income: Stable, verifiable income is a key factor. If you have a consistent work history and a reliable source of income, it could offset the concerns about your credit score.
2. Down Payment: Be prepared to put down a larger down payment. While most conventional loans require around 20%, an FHA loan could be more lenient—as low as 10% for lower scores.
3. Debt-to-Income Ratio: Lenders want to see that you aren’t overextended. Your debt-to-income ratio (DTI) should ideally be under 43%, but exceptions are sometimes made if you have compensating factors like a large down payment or significant savings.
4. Cash Reserves: Some lenders will want to see that you have enough cash reserves to cover several months of mortgage payments. The more reserves you have, the more secure you’ll seem as a borrower, which could help balance out your lower credit score.

The Importance of Shopping Around

One of the biggest mistakes buyers with lower credit scores make is not shopping around for the best deal. Different lenders have different thresholds for what they consider acceptable. Some may work with you if you have a 567 credit score, while others won’t. Compare interest rates, down payment requirements, and fees to find the best deal for your situation.

It’s also worth mentioning that some lenders specialize in working with people who have lower credit scores. These lenders might be more lenient with approval, but again, expect to pay higher interest rates. You might also find that local credit unions or smaller, community banks are more willing to take a chance on you than larger, national banks.

Steps to Improve Your Credit Before Buying

If you’re not in a rush, it might make sense to spend some time improving your credit score before jumping into homeownership. Even a small increase in your credit score could save you thousands of dollars in interest over the life of your loan.

Here are some practical steps to boost your credit score:

1. Pay Down Debt: Your credit utilization ratio (how much of your available credit you’re using) is a significant factor in your score. Aim to keep this ratio under 30%.
2. Dispute Errors: Credit report errors are more common than you think. Review your report for any inaccuracies and dispute them immediately.
3. Avoid Opening New Credit Accounts: New credit inquiries can temporarily lower your score, so avoid applying for new credit cards or loans while you’re preparing to buy a house.
4. Pay Bills on Time: This might seem obvious, but late payments can be one of the most damaging things to your credit score. Set up automatic payments to ensure you never miss a bill.

The Trade-Offs of Buying with a Low Credit Score

Let’s get real for a second. There are trade-offs when you buy a house with a 567 credit score. First, you’ll likely end up with a higher interest rate, which means your monthly payments will be more expensive. Over the course of a 30-year loan, that can add up to tens of thousands of dollars.

Second, your choice of loans will be limited. While FHA, VA, and subprime loans are options, you won’t have access to the best mortgage products on the market. Conventional loans with low-interest rates and favorable terms are generally reserved for borrowers with higher credit scores.

Finally, you may need to pay private mortgage insurance (PMI). This is usually required when you put down less than 20% of the home’s purchase price, and it can add hundreds of dollars to your monthly payment.

Is It Worth Buying Now or Waiting?

At this point, you’re probably wondering whether it makes more sense to buy now with a 567 credit score or wait until your credit improves. The answer depends on your individual situation. If you’re eager to buy and have stable income and enough savings for a down payment, it might be worth jumping in now—especially if home prices are rising in your area. Locking in a property at today’s prices could outweigh the higher interest rates you’ll face due to your credit score.

On the other hand, if you have flexibility in your timeline, it could be beneficial to spend six months to a year improving your credit score. Even boosting it by 20 or 30 points could help you qualify for better loan terms and save you thousands of dollars in the long run.

Final Thoughts: What to Expect in the Future

In conclusion, buying a house with a 567 credit score is possible, but it comes with challenges. You’ll need to be prepared for higher interest rates, larger down payments, and a more complex approval process. But if you strategize, shop around for the right lender, and focus on improving your credit, homeownership could still be within reach.

Remember, homeownership is a long-term investment. While your credit score plays a significant role in the process, it’s not the only factor that matters. With the right preparation and mindset, you can still make your dream of owning a home a reality—even with a 567 credit score.