When it comes to buying a home, your credit plays an important role in the process. Mortgage lenders use your credit score to assess your ability to responsibility borrow and pay back a home loan. However, you don’t necessarily need to have a perfect credit score in order to purchase a home. There are several options available to help those with lower credit achieve the reality of homeownership. Here are some things you can do if you’re a potential homebuyer with a low credit score.
There are many programs available to help homebuyers with less than perfect credit, including Federal Housing Administration (FHA) loans. FHA loans are designed for borrowers with lower credit and offer some of the most lenient qualification requirements. Borrowers can get an FHA loan with a credit score as low as 580 as long as they make a minimum down payment of 3.5 percent on a home. In most cases, FHA interest rates are lower than rates for conventional loans.
If you’re an active duty military member or veteran, you may be eligible for a VA loan. VA loans offer relaxed qualifying standards for borrowers, including no minimum credit score, no down payment, and no private mortgage insurance requirements.
Save up for a larger down payment
Another way to increase your chances of getting approved for a mortgage is by saving up for a larger down payment. Putting down 20 percent or more on your new home will show lenders that you’re able to handle monthly loan payments, even if you have a less than perfect credit history. Plus, by making a more substantial payment upfront, you’ll lower the amount you need to borrow and save on interest down the road. Making a down payment of at least 20 percent may also help you avoid the need to pay monthly private mortgage insurance.
Build up your credit score
It’s always a good idea to work towards boosting your credit score. It may take some time, but if you continue making timely payments and avoid using more than 30% of your credit card limit, eventually you will start to improve your credit score. In addition, be sure you are monitoring your credit score by checking your credit reports at least once a year for errors and discrepancies. Monitoring your reports will also help you spot identity theft, which can damage your credit score.
River City Mortgage is here to help you find the type of loan that’s right for your situation, even if you have less than perfect credit! Our experienced loan officers will guide you through your financing options and answer your questions to make sure you understand all aspects of the home buying process. Let us see how we can help you get into the home of your dreams – contact us today to learn more and get started.