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 a lot of 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 make your payments on-time every month, having a mortgage can help to build up your scores.

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

  • Federal Housing Administration (FHA) loan options may be ideal, as they have programs available 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 for members of the military. A VA loan is generally provided by a private lender with a portion coming from Veterans Affairs. 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.

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