Al asked in Business & FinanceCredit · 2 months ago

can I get a mortgage with a 500 credit score?

assume for a moment, I win the lottery. most lottery winners go bankrupt just a while later. Knowing this, I would want to build my credit just to have some insurance. If I offer to put 1/2 down on a home and put the other half into a bank cd they can hold as collateral, do you think they would be willing to give me a mortgage? Literally no risk to them so why not?

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  • 2 months ago

    The house is the collateral....

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  • 2 months ago

    There are a couple holes in your plan:

    Banks aren't in the habit of accepting collateral on home mortgages other than the lien against the home itself. So most banks don't have an established process for accepting a deposit as security for a mortgage. They're not going to want to make one time exceptions for one customer, it just isn't worth it to them, so they would just turn you away.

    One of the problems for the bank is that you could withdraw that CD the day after you finalize the mortgage - unless you had a contract written up requiring you to keep the money on deposit and authorizing them to use that money toward the loan if you default. That would require the bank to get their lawyers involved to write and review that contract, which would cost them more than any profit they'd make off your mortgage.

    Furthermore, it could violate local laws, depending where the home is located. Mortgages are heavily regulated and most states have non-recourse mortgage laws. These laws can vary slightly from state to state, but in general they say that when a bank issues a mortgage the only security they can require is the lien on the home itself, and if the borrower defaults on the loan they can foreclose on the house but they cannot demand additional payment from you.

    For example if you get a $200k mortgage to buy a house in an non-recourse state, and the market crashes, you stop paying, the bank forecloses but they only get $150k for the house (due to the market crash), then the bank can't sue you for the extra $50k - they have to just eat that loss. So if they're legally prohibited from collecting the difference then it doesn't do any good for the bank to have money on deposit as security if they can't touch it.

    But with 50% down there's always a chance you could find someone to loan you money. Maybe not a traditional bank, and probably at a high interest rate.

    You'd be better off just paying cash for a modest house, then using small amounts of credit responsibly. Do things like get 2-3 credit cards for everyday purchases, pay them off every month without missing a payment, buy a modest car with a short term loan and pay it off quickly, etc. And pay off any outstanding balances or collections & judgements. Eventually  your score will improve without needing a mortgage. There are plenty of people with scores of 750+ or even 800+ who have never had a mortgage, they just pay their bills on time every time and don't max themselves out.

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  • Anonymous
    2 months ago

    Low credit score = very, very, very high interest rates.

    You would probably be able to get a mortgage for a REASONABLY priced home based on paying half up front and backing the mortgage with a money in a bank account as collateral.  But - if you can do that - why not save the interest and just BUY the home.The reason most lottery winners end up bankrupt is because they think they can live forever on their winnings and live like movie stars on their winnings.  They have an unrealistic idea of how long that money will actually last or they make poor investment choices and end up not having a sustainable income.

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  • 2 months ago

    i would ask your bank this question

    • Coffee Drinker
      Lv 7
      2 months agoReport

      Once again, Pearl chimes in with a completely useless answer telling the OP to go ask someone, when that's exactly what this forum is for.

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  • Anonymous
    2 months ago

    No, but if you win enough money you can pay for the house with cash.

    • Al2 months agoReport

      I would want to build my credit so I can borrow money at lower interest rates if I end up broke like most lottery winners do

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  • Anonymous
    2 months ago

    Half down will get you a mortgage. A SUBPRIME one.

    A bad deal for you.

    But, stop with the wishing.

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  • Anonymous
    2 months ago

    Maybe on a $100 tent.

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