For families were looking to buy a home one of the biggest setbacks people have been their credit score. The better the credit score the more likelihood you can get a loan. Everyone knows this, however, if your credit score needs a little bit of love, believe it or not there’s a mortgage loan programs out there. Here are some things you want to know if you’re looking to buy a house in your credit score is less than perfect…
Generally speaking, you can get a mortgage to buy a home with a credit score that’s less than perfect. Usually, the loan program that plays post to such a scenario is loan insured by the Federal Housing Administration. This type of loan does have PMI; however, the PMI could be temporary until you can sell or refinance the house in the future so don’t let the PMI be the determining factor about whether you decide to buy a home or not.
Two excellent questions to ask a prospective lender are “What is the lowest credit score your company allows and how many loans you have specifically closed with a less than 600 credit score?” If there is any wavering or pausing find a different mortgage company. Your homebuying success rests on this. That said, companies that do a less than 600 credit score generally for a 580-credit score or higher will take 3.5% down on an FHA loan as loan as it passes automated underwriting. However, if your credit score is less than 580 but say 500 to 579 that’s where things get a little bit more challenging.
It’s to be expected if your credit score is in this range, it’s going to be a little bit harder of a process, although not impossible. Simply put you might need anywhere from 15 to 20% down. For example, let’s say a mortgage company has a requirement with less than 579 credit score of 15% down, it also must pass automated underwriting which is the desktop underwriter through Fannie Mae. If the Fannie Mae desktop automated underwriting does not produce an approve eligible findings, you might need to put down 20%.
This, of course is assuming you have a stable job and a sufficient debt to income ratio. The debt-to-income ratio generally on a traditional FHA loan with a higher credit score can go as high as 56.99. It’s reasonable to assume that the debt-to-income ratio requirement is probably going to be somewhere around 45 or 43% earmarking a qualified mortgage. This could become particularly important because if you’re trying to buy a home, you need to make sure that not only that you can qualify for the house but also that you can afford the payment in relation to the price of the home you’re desiring to try to qualify for.
A good mortgage company can help walk you through the ins and outs of this. Another thing you might want to possibly consider giving your situation is- can you increase your credit score by paying off debt and run a credit score doctor to see if you can pay off some debt to get the credit score up? That’s another alternative with which to give some credence as relates to buying home.
If you’re looking to buy a home and need some credit repair improvement start today with a mortgage rate quote.
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- Source: https://sonomacountymortgages.com/2023/10/buy-a-house-under-600-score/
