If you have poor credit, it may be discouraging and possibly even embarrassing. But there is no need to feel trapped in a rental situation forever. Buying a home when you have poor credit is possible. Anything below 580 is considered bad credit. Fair credit hits between 580 and 669, and good credit is between 670 and 739. Anything above 740 is considered excellent credit, with 850 being pretty much perfect. It is possible that you can get a home loan with credit as low as 500.
It’s important to remember that your credit score is temporary. You can change your score by changing a few habits. Even small changes can make big differences. Credit scores are based on your payment history, track record, borrowing habits, experience with varying credit types, and recent attempts to secure additional credit. Scores are not based traits such as age, gender, race, marital status, medical history, criminal record, or salary. They are simply merit based, meaning that anyone can work their way up to a perfect credit score.
Mortgage Options
Naturally, the higher the credit score, the more borrowing options someone has. For scores between 500 and 580, FHA and VA mortgages are typical. Below 580 scores, however, will need a 10% down payment for FHA. VA loans often don’t require a down payment, but typically the minimum score is 580. For scores around 620 to 640, it’s possible to qualify for a USDA or conventional mortgage. Many first-time home buyers use government financing. Building enough credit for buying a home can take as little as six months, and after that initial six months, your credit can improve each and every month. A little patience and some discipline and you can get to a secure place for good financing.
Action Items
Buyers with higher credit will benefit from more options and lower rates. If you have time to work at your credit, it’s a good idea to make it a priority. You can improve your credit score by lowering your credit utilization, which means paying down your credit cards or other loan balances. This will also help your debt-to-income (DTI) ratio. You will also want to make an effort to make payments on time. Late or missed payments will affect your score. Pull your credit as well to check for accuracy. You can do this through the three main credit bureaus: Transunion, Equifax, and Experian. Monitor your history and dispute errors immediately. Finally, you can also remove yourself from any co-borrowing accounts on someone else’s credit if they have poor credit. This is a quick way to improve your score.
If you get into a loan with poor credit and drastically improve your score later on, remember that you have the option to refinance. There are always possibilities out there, you just need to know the right team to help you. If you want to buy a home and you’re concerned about financing because of low credit, give InterWest Mortgage a call to find out what we can do for you.
