Are you thinking about buying your first home? It’s one of the biggest investments you’ll ever make, making it a scary but exciting time. You may have a shaky employment and credit history, so you’re wondering if you’ll even qualify. Most people believe the hype that you need a flawless credit score to buy a home, but that’s not necessarily the case. Here’s what you do need.
What Kind of Credit Score Do I Really Need?
According to Magnify Money, the lowest credit score requirement is around 620 to qualify for most home mortgages. Each lender and loan type is different. If you’re applying for a first-time homebuyer loan like an FHA or USDA Rural Development home loan, you might qualify with a lower score. Keep in mind that the higher your credit score is, the better your interest rates are likely to be.
Do I Really Need a Lot of Money Down?
If your credit score is in the 600 range, you may be required to put a large down payment of 10% to 20% down on the home. This secures the loan in the interest of the bank. If applying for a zero-down or government-backed mortgage, you’re not required to put a lot down, but if you do, it shortens the balance of your loan.
Prepare Now Before Applying
Before you even call a realtor or go to the bank to get a pre-approval letter, see where you stand credit-wise. If you’re the only applicant, run your credit report and obtain your FICO score. If you have a spouse, they will need to get their credit score too. If your score is too low, under 620, you’ll need to figure out why. Is it an old debt that went to collection? Late student loan payments? Work on paying off these items or paying them on time, then re-check in about 3 to 6 months.
What Could Prevent Me From Getting a Mortgage?
The biggest obstacle holding you back from getting a mortgage approved is having a high debt-to-income ratio. This means your debt load, including vehicle payment and credit cards, is too high for your income to cover. A good rule of thumb is to stay under the 43% mark. Most banks won’t lend you money if your expenses (new mortgage amount included) surpass that 43% threshold.
There are several factors that go into getting approved for a mortgage loan. Your debt load and income ultimately make up most of your credit score. Your best bet is to pay everything on time, avoid racking up credit cards and keep expenses at a minimum. As your score rises, the chances of getting approved for the home of your dreams will increase.
~Here’s to Your Success!
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