You may not have the best credit score, but that doesn’t mean you can’t get a home loan. In fact, there are a lot of options for borrowing money with a low credit score, including government backed loans. If you have a bad credit score, it might be a good idea to start improving it before buying a house. This will allow you to qualify for a better mortgage and save you thousands in interest payments down the line.
When it comes to credit, a credit score of 620 is considered the minimum for a conventional mortgage. If you have a lower credit score, you’ll need to make a larger down payment, which will increase your monthly mortgage payment. It’s also a good idea to contact a lender’s Home Lending Advisor to find out more about your eligibility for a home loan.
Another factor to consider is your debt-to-income ratio (DTI). Your lender will use this number to calculate whether you’re a good candidate for a mortgage. A high DTI can mean a higher monthly mortgage payment, as well as more expensive interest rates. Most lenders will look for a DTI of 36% or less.
Other factors include your assets. You’ll need to prove that you have enough income to cover your loan, as well as a sizable amount of equity in your home. For instance, if your home has a fair amount of equity, your lender might approve you for a loan with a lower down payment.
You can also repair your credit in other ways. You can do this yourself, or you can hire a company that specializes in helping people fix their credit. The latter option will require some up-front costs, but the benefits will be well worth it in the long run.
Another important thing to know about credit is the averaging effect. Getting your credit score to a particular point isn’t a given, but by averaging your scores you can see how your credit is faring. And by averaging your scores you’ll have a good idea of what kinds of loan terms you can expect. Lastly, you should make sure you pay all your bills on time, as this is the smallest but most important factor in determining your credit score.
Buying a house is one of the biggest investments you will ever make, and it’s no wonder that many buyers are reluctant to do it with a low credit score. However, there are plenty of options for home financing with a bad credit score, and it’s a good idea to investigate your options before you commit.
While you’re at it, you might want to look into a refinance. This can replace your current mortgage with a new one with better terms. Besides, you’ll be able to get the same perks that a new mortgage can offer, like a lower interest rate and a new, lower monthly payment. Depending on your current credit score, you might be able to qualify for a low-interest home loan with a higher down payment, which can help reduce your monthly cost.
