When it comes to home loans, there are a variety of things that are taken into consideration by lenders when they decide whether or not to approve your application for a loan. One thing that lenders consider is your credit score. In fact, your credit score often has a major impact on both your ability to get a loan and your interest rate. If your credit score is on the low end, qualifying for a loan may be a challenge. Here are three tips for getting a home loan with less-than-stellar credit.
Take Steps to Improve Your Score
If you have enough time before you plan on buying, taking steps to improve your score can make a big difference. Paying your bills on time is one way to increase your score. The fastest ways to increase your score include paying down your debt and also improving your debt-to-income ratio either by eliminating debt or increasing your income. Checking your credit report for errors and having any that emerge fixed can also improve your credit score. Making just a few changes can help you qualify for a mortgage.
Another tip for getting a home loan with bad credit is by shopping around. There are a variety of lenders to choose from, and some are more willing to work with those who have lower credit scores than others. There are also different types of loans to choose from. With a conventional loan, you will typically need a credit score of at least 620. VA loans also typically require scores of 620 while USDA loans require scores of 640. For those with bad credit, FHA loans may be the right option. Typically a score of at least 580 is needed; however, in some cases, those with scores as low as 500 are approved for a home loan.
Have a Larger Down Payment
If you are attempting to get a home loan with a low credit score, bringing a larger down payment to the table may increase your odds. A larger down payment signals to lenders that you are responsible enough to save and that you are serious about home ownership. Another added benefit of a larger down payment is that if you make a down payment of at least 20 percent, you will be able to avoid having to pay for private mortgage insurance.
Obtaining a home loan with a low credit score can be a challenge, but there are a few things that you can do to increase your odds. Just a few changes can improve your credit score quickly and increase your chances of being approved. Shopping around can also be beneficial if you are struggling to get a home loan. A larger down payment also signals to lenders that you are responsible enough for a mortgage.Share