Your credit score has a significant impact on the loan rates you'll be offered when you apply for a mortgage. So, what happens if you have a low credit score?
Pay a little more
Those with damaged credit can still qualify for a loan, but they may have to pay a higher interest rate. Borrowers with a credit score of 760 or higher are likely (but not guaranteed) to obtain the lowest mortgage rates available. Meanwhile, those with a lower score could be approved at a higher interest rate. Remember: the higher your loan rate, the more you'll pay over the course of the loan.
Consider FHA loans
Another option is to take out a Federal Housing Administration (FHA) loan. The FHA is a U.S. government agency that backs lenders, and it is more likely to offer mortgages to those with damaged credit. If you're having trouble saving for a down payment, FHA loans also allow borrowers to pay as little as 3.5 percent down.
What's the catch? FHA loans require buyers to purchase mortgage insurance, which is a high upfront fee. Buyers will also be expected to pay mortgage insurance monthly over the course of the loan.