It’s a new decade, and you have the gigantic goal to purchase your first home by the end of the year. But you worry about your credit score. What if you can’t get a reasonable interest rate for a home loan? Is it really possible to purchase a new home this year?
Well, put those fears to rest, because with some dedication, a clear plan of action, and maybe a little help from a credit repair company, you definitely could be handed the keys to your first home in 2020.
Keep reading to see how you can make your homeowner dream come true!
A Good Credit Score Is Important When Buying a Home
The essential first step in purchasing a home is making sure that your credit score is as healthy as possible. Your credit score is the foundational piece of information that determines the interest rate you’ll pay on a mortgage. It provides essential information to your lenders about how responsible you are with your money.
A high credit score shows that you’re more accountable and that you have a consistent history of paying your bills and debts on time. A lower credit score, however, is a red flag for most lenders and is considered a red flag.
If you have a lower credit score, and you are approved for a home loan, you’ll probably have a higher interest rate because lenders see you as a liability.
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What Credit Score Do You Need to Buy a Home?
The baseline credit score for obtaining a mortgage will vary from lender to lender. Generally speaking, any score that is in the 700s or higher is considered excellent.
Why does this matter?
High scores get the lowest interest rate available in the market. When it comes to determining how risky you are as a borrower, however, the minimum score differs from. Some lenders have a baseline of 660, while others have 640 or 620.
Your credit score is lower than 700, that doesn’t mean homeownership is out of your reach.
There are still a variety of other mortgage programs through the Federal Housing Association (FHA) and Veteran Affairs (VA), which provide more flexible requirements to help you purchase a home. These programs are for borrowers with scores as low as 580 in some cases.
How to Buy a House with Bad Credit
If your credit isn’t good, your dreams of homeownership aren’t completely gone. Here are a few steps you can take to regain control of your credit and reach your goals.
Get Your Credit Report
Before you can work on repairing and raising your credit score, you need to understand your current state and what’s affecting it. You are entitled to a free credit report from all three major credit bureaus every year so that you can take a look at what your current status is.
This report includes your personal information, payment history to all your creditors and debts, and whether or not you’ve ever filed for bankruptcy. Review your report, and if you find any errors, you should work to fix them immediately.
A credit repair firm may be a good investment in this case. They are professionals at helping consumers remove and correct inaccuracies quickly and correctly.
Start Saving for a Down Payment
No matter which lender you go with, you’ll more than likely need to put a downpayment when you get a mortgage. Saving for a down payment is one of the best ways to show lenders that you’re serious about purchasing a home, and also that you’re responsible enough with money to save a significant amount.
This is especially important if you have bad credit. If your credit is less than stellar, consider setting aside a larger down payment. Putting a more substantial chunk of change down can help you get a better mortgage rate, too, since you’re borrowing less.
There are a variety of mortgages that will accept down payments for as low as 3.5%, but you should still aim for higher if you can.
Apply for FHA or Low-Credit Loans
If your credit is below the threshold that most private lenders will accept, consider looking into an FHA loan.
The Federal Housing Administration provides a few different options for prospective homeowners that may have challenging financial histories to obtain a private mortgage. Many borrowers can qualify for a mortgage through these programs with a credit score of 580 plus a 3.5% down payment.
There are a few things you should know about going through an FHA program to get a mortgage:
All FHA loans require you to pay mortgage insurance, which is a premium that’s added to your home loan, throughout the lifetime of the loan. Mortgage insurance provides peace-of-mind for the lender because it protects them if you stop making your mortgage payments. Currently, the mortgage insurance premium on an FHA loan is 1.75% upfront and then 0.7% to 0.85% annually.
You’re a veteran, you should also consider looking into VA loans. The VA doesn’t set a minimum credit score, but they do prefer to have borrowers with at least a 620.
Both the VA and FHA mortgage programs provide borrowers with challenging credit scores a path to homeownership.
Rebuild Your Credit
If you do find yourself unable to qualify for a loan, you’ll need to concentrate on taking steps to become more creditworthy to prospective lenders. Take a detailed look at your credit report again and try to identify what is impacting your score.
For example, if you have a very high debt-to-income ratio, you can improve that by paying off high-interest debts first. However, if you’re stuck and don’t know how even to attempt to repair your credit, the best thing you can do is to hire a credit repair company.
Their job is to help you by creating a detailed, personalized plan to help you get your credit back on track. With their expertise, you’ll know precisely what you need to do to get your credit back up to par, and realize your dreams of homeownership in no time!
The path to financial freedom and homeownership isn’t out of your reach, no matter what your current credit situation is. Awareness is the first step in making any changes, and knowing where you stand now gives you the ability to create a pathway to the future.
And if you want a detailed, expert plan to change your credit situation, hiring a credit repair company is one of the best things you can do.
Don’t wait until it’s too late and make your dreams of homeownership come true!