You’re tired of renting and want a house of your own. The only snag to your dream is you have a low credit score. Thankfully when the housing market crashed, lenders looked at potential buyers with fresh eyes. They had to come up with ways for those with low credit scores to become homeowners.
There are ways to get around a low credit score in order to buy a house.
Cash Gift
If your credit score barely reaches the minimum credit scores for a home loan, then it’s imperative to raise a lot of funds. Asking friends and family for money to help get you started because cash deposits in this way are reported as a gift. Let it sit in your bank account for 60 days so lenders can see that you have a cash history.
Large Down Payment
A more substantial down payment often offsets low credit scores. Most minimum down payments are 20 percent, but remember that’s only the minimum. It’s in your best interest to pay more. Raise up to 30 to 40 percent of the purchase price of the house to get started. This will give you less to repay over time, will raise equity on the house, and will make it so you will have to pay less interest over time.
FHA Home Mortgage Loans
The Federal Housing Administration helps first-time homeowners with low credit scores get mortgages. The loans are insured, so lenders look favorably upon buyers with low credit scores.
Lenders who once wanted a credit score of 620 to 640 now welcome potential buyers with a 500 to 580 credit score. FHA loans require buyers with a credit score of 500 to put down ten percent, and those with 580 scores to put down 3.5 percent.
Government Assisted Loans
The government wants as many homeowners as possible. They have multiple programs to try to get residents into homes. Many people grow concerned on the topic of the government though. But that shouldn’t stop you from investigating to see how they can assist you. A common myth is that since the government wants people in homes so much, they accept everyone. Although it isn’t as hard to get a government assisted loan, there are still requirements to meet. Lenders who work with the government on these kinds of loans can require a minimum credit score, even on government issued loans such as VA loans or Student Loans.
Improving Credit
Higher credit scores mean more favorable terms on your loan. Credit scores require a bit of time, discipline, and careful planning to raise. But by having a better credit score, then you are better equipped to get a loan that has a better rate for you and your family. There are many ways to improve your score, so you should read up on how to best do that.
Check your credit report for mistakes or errors. Credit agencies will correct inaccuracies if you point them out, which will raise your score.
Making payments on time raises credit scores by as much as 10 points. If hardship or other problems have prevented making on-time payments, then beginning anew will increase your credit score.
Keeping your balances at 30 percent of the credit limit and paying the balance on time will raise credit scores. Balances at ten percent of the credit limit will raise scores much more.
Buying a home with low credit scores is possible. Working on your credit as well as following lenders’ suggestions for credit improvement will get you into a new home in no time.
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