Are you planning to buy a house? You may be heard that if your credit score is good, then it could be easy to get a loan. Suppose if your credit is poor, then what to do? No worries, you may be able to get a home loan with bad credit too.
If you’ve time to buy a house then try to improve your credit score. If not then you should know about different programs available to borrowers with low credit scores.
Check your credit reports and scores
Checking your credit score and reports will give you an idea of fixing the budget and the type of home loans to choose from. The good or bad credit score depends on the lender and the type of credit score. The lenders will check your reports from TransUnion and Equifax, as well as FICO Scores.
Below are the fico scores which are divided into five ranges,
- Very Poor: 300-570
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Exceptional: 800 – 850
The higher your score, the more options you’ll have for credit, including home loans. Suppose if your score is below 500 then the chances of home loan approval are low so try to build your credit.
A score of 500 means you can get a government-backed FHA loan but you should afford a 10% down payment.
Getting a Home Loan With Bad Credit
Mortgages are large loans that times a long time to repay. Even a 1% or 2% hike can lead to paying more interest over the lifetime of your loan. No matter what your credit scores, just compare your loan options to get the low rate possible. FHA and VA loans, are good options if you have a low credit score.
FHA Home Loans
The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), offers a loan for those who have a poor credit score.
To qualify for FHA loans, you’ll need,
Proof of employment.
A middle credit score of 580 with a 3.5% down payment, or 500 with a 10% down payment.
Your monthly payment should be less than 43% of your monthly gross income
Try to get an FHA loan if you have poor credit or afford a small down payment.
To qualify for this loan, you must be a service member, veteran, or surviving spouse, then you may qualify for the U.S. Department of Veteran Affairs (VA) home loan program. The minimum credit score of a VA loan should be 620.
How to Improve Your Credit Scores Before Buying a Home
Follow the below steps,
- Make on-time payments
- Keep your credit card open
- Build your credit file
- Time your application
- Pay down revolving debt
To get a home loan with bad credit, be patient, take some time to speak with agents for several lenders, and access your credit reports. Choose carefully and make sure you can afford to make the payments.