When your credit score is low, the dream of home ownership can seem like an impossible one. You’re not alone. More than 30% of Americans have credit scores below 670, which is often the minimum score required to qualify. Loans with the most competitive rates require at least a 675.
However, there are things you can do to improve your chances of making your dream come true, even with less-than-perfect credit. If you follow the advice below, you’ll step into the mortgage lender’s office with more confidence and better odds of success.
Take actions to improve your chances of loan approval.
- Maintain steady employment
- Pay your bills on time
- Paying off existing debt
- Avoiding taking on new debt
- Save money and build a cushion for emergency situations
Do your homework. Knowledge is your friend.
Bad credit doesn’t exclude you from all mortgages, but some types of mortgage loans will be harder for you to qualify. On the other hand, two federally funded programs, FHA and USDA home loans, are friendlier to people with poor credit and have easier minimum requirements. But watch – often loans with lower qualifications come with stricter limits or other stipulations such as requiring mortgage insurance for the life of the loan.
FHA Loans and bad credit.
You may qualify for a 3.5% down payment with a credit score of 580.
VA Loans and bad credit.
VA loans have a minimum 580 credit score requirement. They offer several advantages for borrowers with bad credit:
Conventional Loans and bad credit.
What are called conventional loans are loans not insured by the federal government. They require a minimum credit score of 620. Conventional loans that also conform to the criteria set by Fannie Mae and Freddie Mac will have additional requirements. USDA loans also require a credit score of at least 620.
Know where to look for your loan.
Private lenders, credit unions, and community banks will have more flexibility in what they can offer to a borrower with poor credit. Regulated institutions, such as large banks, must follow a stricter guideline and so may not have as many loan options to offer you. Remember, though, that the leniency of a private lender usually comes with a cost, such as higher interest rates or a higher minimum down payment.
Save up for a larger down payment.
This may take longer than you’d like, but it’s the smart way to go. The worse your credit, the higher the payment you’ll have to make anyway. Plus, anything less than a 20% down payment will require the expense of private mortgage insurance. Having more cash in hand tells lenders that you’re serious and improves your chances of being offered a better rate.
Get good advice.
Reach out to a Caliber Loan Consultant. At Caliber Home Loans, our passionate goal is to bring the dream of homeownership to as many people as possible. And that includes people with bad credit. Mortgages is all we do. Let Caliber put you on the path to home ownership, no matter what your credit score is.
Additional information can be located here: https://www.caliberhomeloans.com/faqs