Will Low Scores Lock You Out of Home Buying?

If you’re ready to be a homeowner but worried your low credit scores won’t get you in the door, don’t! There are many loan programs to help first-time buyers – and those with less-than-stellar credit – qualify for a mortgage. It may cost you a bit more in a higher interest rate, but if you make your payments on time every month, having a mortgage can help to build up your credit score.

If your scores are at least 500 to 580, you’ve got options:

• Federal Housing Administration (FHA) loan options may be ideal, as they offer programs for home buyers with less-than-perfect credit. FHA loans have less strict requirements than conventional loans. Buyers can qualify for a loan with as little as 3.5 percent down compared to a typical 20 percent down payment required by other types of loans. 

• U.S. Department of Veterans Affairs (VA) loans are available to military members. A VA loan is generally provided by a private lender, with a portion funded by the Veterans Affairs (VA) agency. This gives those who served in the military (and have lower credit scores) more opportunities to secure a mortgage.

• Owner financing may be another option available. The buyer finances the home directly with the seller. It’s a possible alternative if you are not approved for other types of loans. Keep in mind that the seller will usually require a higher down payment.

Your journey to becoming a homeowner starts with understanding what’s driving your credit scores, which actions may be helping or hurting – and why.

Ask yourself these questions:

• Do you typically pay your bills on time or late?
• What about your account balances…have they gotten higher, lower, or stayed the same?  
• Have you opened or closed a credit card account lately?
• Is an undetected error on your credit reports hurting your scores?

Find out where you stand with all three credit bureaus, TransUnion, Equifax, and Experian – and review your credit reports for score-lowering errors that you may want to dispute before you go house hunting.