You probably know that your credit score is very important when you’re applying for a mortgage. You already may have been denied a mortgage because of your poor credit score, or maybe you have pulled your credit report recently, just to find out that you credit score is bad than you’ve already expected.
However, you don’t have to give up you dream to own a home. They are many lenders who are willing to lend you a conventional mortgage even if your credit score is low. But at first, you should find out what creditors are expecting of your credit score, and you may be surprised to find that you indeed can buy a house with your existing credit score.
What are conventional lenders looking for?
Lending requirements differ from lender to lender, but most of them have become very strict after the subprime mortgage crisis of 2008. Basically, a FICO score of 650 is needed to qualify for a conventional mortgage. But remember, the lower your credit score, the higher interest rates you have to pay. By time, this can dramatically increase the total amount you owe to your lender. So, if your credit score is low, you might have to look into some of these matters before you apply for the traditional mortgage.
Increase Your Down Payment
Mortgage lenders look into many factors when deciding to whether grant you a mortgage or not, and credit score is one of them. But another factor they look into is your down payment. With some lenders, increasing the down payment will offset the effects of your low credit score, which means that lenders will now see as a low risk when lending to you.
If you happen to have a lot of savings, but still have a low credit score, consider applying for a mortgage from a smaller bank. Generally, these small firms have more flexible lending policies, so you can negotiate with a loan officer about your situation and get a favorable interest rate.
Look Out For Non-Conventional Loans
If you have a low credit score and a small down payment, then consider applying for non-conventional loans. These non-conventional loans or sometimes called non-conforming loans, like the Federal Housing Administration loan, U.S. Department of Agriculture loan, and Veterans Affairs loan, usually have less strict lending requirements.
For example, you can get a FHA loan with a credit score of just 580, by just putting a 3.5 percent down payment. You can get a FHA loan with even lower credit score, if you can pay a 10 percent down payment.
There’s another alternative, which is talking with banks in your locality regarding specialized lending programs. Some banks have programs for low-income, low-credit homebuyers, which is enough for you to qualify.
Take Help From A Homeownership Counselor
There are some national and local non-profit organizations that offer homeownership counseling like HOPE NOW and HomeFree-USA. These nonprofits offer counseling to future home owners who require help to raise their credit scores or in understanding the home buying process.
Though it may take some time, but with the assistance from a credit and housing counselor, you can learn what to do to build up your credit score and apply for a mortgage.
Improve Your Credit Score
You can simply sit down and improve your credit score. Building your score isn’t a complicated thing, but it takes time, hard work and discipline. Correct any mistakes on your credit reports, particularly about the collections and late payments that aren’t yours. Never miss a payment, pay off your credit cards and maintain a high debt-to-credit ratio, pay off all of your outstanding debts, and you will find an improvement of your credit score in no time.
Even if you’ve decided to apply for a non-conventional loan or increase your down payment on your home, developing good credit habits like the above are the best thing to do.