Mortgage rates continue to be at their lowest, attracting many people to take out a mortgage to buy a new home. However, if your credit rating is low, you might think that you are not eligible for a loan, but you would be surprised.
There are options and recommendations that a person with a low credit score can follow to better position themselves for the purchase of a new home.
Loans are often classified according to ranges of credit scores. Credit scores ranging from 500 to 580 have fewer options than those with a credit score above 600. However, a government backed FHA loan and an unqualified mortgage are options and recommended for someone with a credit score between 500 and 580.
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FHA loans are guaranteed by the Federal Housing Administration and in addition to being an option for those with a low credit rating, these loans do not incur additional fees and will not necessarily have interest rates. higher. The borrower may need to make up to 10% down payment, but it is still a good choice for those with a low credit rating.
When a person’s credit score is 600 or higher, there are more loans to consider. One of the most popular in rural areas is a USDA loan because of the zero down payment requirement. However, this loan is only available in eligible areas, so it is important to check if the place where you want to live is covered by this loan.
The interest rate and the amount of money to deposit are often the two factors that have the most impact on a loan for someone with a low credit rating. Most lenders will require a minimum of 620 credit points in order to qualify for a conventional loan.
There are two more user-friendly options for those with a minimum credit score of 620 – the Freddie Mac Home Possible Purchase Program and the Fannie Mae HomeReady Loan. These are options for low to moderate income borrowers and first-time home buyers. In addition, there are other government assistance programs and grants for first-time homebuyers that are important to look for early in the home buying process.
Having a high credit score will give you access to better loans and more options. So if your score is low, take action to improve it. First step, pay off your credit card balances and improve your payment history. Then check the accuracy of your credit report. Errors occur and when you see an error you can report it to hopefully correct your report and score. Limit your other debts – for example, prioritize whether you want to buy a new house or a new car.
Navigating mortgage options is complex, so regardless of your credit rating, it is essential to work with a trusted mortgage advisor and broker so that you understand your options and all the details related to loan requirements.
Homie Loans aims to provide buyers with the best possible loans, rates, and terms. Even if you don’t buy a home with a Homie agent, buyers can still use the services provided by Homie Loans. For more information visit www.homieloans.com/.
Dan Richards is Senior Vice President of Loans buddy.