Home ownership is something that many people hope to attain after a few years in the work force. Unless you make thousands of dollars a month and you’ve been saving for quite some time, you will have to take out a home loan in order to purchase a house. This means that a home loan agency will have to run your credit to see how much you qualify to borrow and how high your monthly mortgage payments will be.
The average American holds about a credit score of 673. This is considered to be an OK credit score, but it is by no means a good or excellent score.
But this fact can make a lot of people who would be first-time home buyers feel as if they can’t own or purchase a home. The truth, however, is that different lending agencies will require different things from you.
For example, the Federal Housing Administration, set up in the 1930s under President Franklin D. Roosevelt, only requires between a 500 and 580 credit score for home buying. Those who have between a 500 and 579 can purchase a home when they put a 10 percent down payment on it. If they have a credit score of 580 or higher, they only have to put a down payment of 3.5 percent down.
Other companies vary. For example, a VA loan accepts borrows who have between a 580 and 620 credit score. USDA loans require a 640, Conventional loans require 620 and so on.
When you are looking to find a loan, you need to ask what the minimum credit score for a borrower would be.
Aside from credit score, loan companies do take more into consideration when deciding if they want to help you finance a home. If you have any of these things, your credit rating may not hold a lot of weight:
If you’re making a lot of money, it shows a potential lender that you have the means to pay your bills. They don’t have to worry about how you will pay them back, so they will be more likely to lend to you, even if you have a lower credit score than they would like.
LONG EMPLOYMENT HISTORY
If you’ve been at your job for several years, lenders may look past your low credit score. They see that you aren’t in danger of losing your job and you will be able to make payment whenever needed.
Savings accounts can show a lender that you are serious about your money and you have back-up reserves should you need to pay your bills in the event of a financial emergency.
LOW DEBT-TO-INCOME RATIO
If you are making money and have a low amount of debt and unsettled accounts, this can work to your advantage when borrowing. Instead of focusing on your lower credit score, the lender will be more focused on the fact that your debt is low.