If you have thought about purchasing a home, then you are aware that your credit score is a very important factor. Not everyone has good credit and yours may be far from it. Are you afraid of applying for a loan and getting denied because of your low credit score?
If you do have a low FICO score don’t throw in the towel on buying a home. You may have many different alternatives to getting a mortgage loan. Before you consider those options, lets take a look at what qualifications lenders are expecting. You could be surprised that you may qualify to buy a home with your current credit score.
Lending requirements are normally strict but can differ between all lenders. Most lenders require that you have a FICO Score of at least 640 to be considered for a loan and that is on the lower end. One thing to also remember is that the lower the credit score the higher the interest rate, so you could end up paying too much for your home.
There are three things you should consider:
1. Have a bigger Down Payment
Even though your credit score is not very good, if you put more money down lenders are more likely to approve your loan. The bigger the down payment, the more equity you will have invested in your home which means the lender actually takes a lower risk when lending to you. Also, if you have low credit but have a lot of cash saved up you may want to consider getting a loan from a non-traditional bank because they may have more flexible lending guidelines that could work in your benefit.
2. Do your research on Non-Conventional Loans
The combination of a low credit score and a small down payment can mean that you should look into non-conventional loans. There are many lenders that can offer less strict loan requirements. Those lenders include: Federal Housing Administration loan, Veterans Affairs loan and U.S. Department of Agriculture loan. Some banks may even have specialized lending programs that can assist with qualifying lower-income and lower-credit homebuyers for loans.
3. Work with a Loan Officer that is knowledgeable in credit repair
If you find yourself in a situation like this it is very beneficial to seek out a loan officer with credit repair experience. No two loan officers are alike. There are a select few that specialize in helping their clients take the proper steps to improve their credit score and qualify to purchase a home in the future. You want to look for a loan officer that is patient and willing to spend the time to help you whether it takes you one month or one year to clear up the derogatory items on your credit report.
Sometimes rebuilding your credit can be a very time-consuming process but with hard work, motivation and discipline you’ll be able to increase your score in no time.
Here are some tips on how to get your credit score to go up:
1. Make sure you correct all errors that could appear on your credit report.
2. Don’t be late. Make all your payments on time every time.
3. Ensure that your debt to credit ratio is low. It’s best to be under 50% of your credit
limit on all of your accounts.
4. Be patient, keep paying off debt and stay with the process and eventually you will
see a change in your score.