What is the minimum credit score needed to obtain a home loan?
It is always a great idea to buy a house. Getting your own home takes away the problems you encounter when you rent a house. You no longer need to deal with landlord problems, and you live by your rules. However, buying your own house is a lot of investment. Many people rely on loans to purchase a home. One of the first things a lender will look at when you are obtaining a home loan is your credit score. A good credit score makes it easier to access a home loan. What credit score is considered okay for obtaining a home loan? However, what is the credit score needed for a home loan?
It is essential to check your credit score before taking further steps to apply for a loan. The truth is that the required credit score varies from one lender to the other. However, most lenders accept a credit score that is above 660. Your credit score does not only determine your eligibility for the loan. It can also affect your interest rate. It is widely known that taking out a loan with your bad credit can increase the interest rate. The lower the credit score, the higher the interest rate. This is because it is risky for lenders to grant loans to borrowers with low credit.
What other things do lenders look at?
Lenders do not only look at your credit score. According to them, a bad credit score does not always mean you cannot repay the loan. This means you may still have a chance even if you have bad credit. There are some compensating factors for bad credit. The lender may still want to grant you the loan if you meet these requirements. If you have a low loan-to-value ratio, your bad credit may be overlooked. You can attain this if you make a down payment of 10 percent or more of the total amount. If you have a large amount of money in your savings account, the lender may decide to grant you the loan. At least the lender knows you can pay back with your savings when the period is due. If you have stayed with your current employer for a long time, it may increase your chances of accessing the loan. A high income and low debt to income ratio are also one factor lenders consider. These may influence the lender to grant you the loan even if you have bad credit.
If you are still worried about your credit score, you can also ask someone with good credit to sign the loan with you. That person becomes a cosigner. Your cosigner must understand that he or she is now equally responsible for the loan. Which means if you do not pay the mortgage, your cosigner will also be held accountable. Non-payments of your loan will not affect only your credit score; it will also affect the lender’s credit score. It is vital to explain all these to your cosigner before involving him or her in the loan process. If the cosigner understands the terms and still agrees to sign the loan with you, then that is great. One good thing about involving a cosigner is that a cosigner can strengthen your loan application. However, the lender will need to cosigner you will choose for your loan.
Is a good credit score all you need to qualify for a home loan?
Your credit score is a primary requirement, but there are other factors lenders look at. They will look at your income status. You should have a steady source of income to qualify for a home loan. Since you will need to pay back the mortgage, the lender wants to know if you have to capacity to pay for the loan. Some lenders also specify the type of house they are willing to fund. Lenders also run home appraisals on the homes they are going to fund. They will usually not lend you an amount that is higher than the appraisal value. Lenders also look at your bank statement.
What are FHA loans?
When you cannot make a substantial down payment to access a home loan, you can take a look at the FHA home loan. The FHA home loan is an excellent option for potential home buyers have low income. This mortgage is insured by the Federal Housing Administration (FHA). With this loan type, borrowers with a FICO score of 580 or more can make a minimum down payment of 3.5% of the total amount while borrowers with FICO score lower than 580 will need to make at least 10% down payments.
Many people prefer FHA loans because they have low requirements. The credit score requirements are low, and they also offer loans at low interest rates. Most borrowers are discouraged by high interest rates, and this is when FHA loans are a great option. The administration fees are also lower compared to other home loan packages. You will realize that the mortgage insurance and closing cost on this loan is lower compared to other loans. Many lenders do not grant home loans to borrowers who have filed for bankruptcy in the past. However, the case is different with FHA loans. FHA lenders will not automatically exclude you from applying for a loan because of your bankruptcy history. You will still be eligible if you meet all requirements. If you can build good credit, they will consider for the loan.
How to improve your credit score
If you have bad credit and you are having a hard time accessing a home loan, you still have a chance. You can work at increasing your credit score to increase your chances of getting a loan. One way of improving your credit score is to reduce your credit card balance. High credit score balances lower your credit score. You should try to pay down your credit card balance before applying for the loan. Credit card balances make a significant contribution to your credit card balance.
You can also pay for the delete collections on your credit report. Collections on your credit report impact your credit score negatively. However, your credit score can improve if the creditor deletes them after you have paid them. It is important to note that paying them off alone does not improve the credit score, the score only gets improved when the creditor deletes the accounts. You should talk to the creditor to know if he or she agrees to deletes the account after you have paid off the collections. If the creditor does not agree to delete them, then there is no need to pay them off since it will not improve your credit score.
You can also pay up your general debts that appear on your credit report. Most people succeed in reducing their debts when they reduce their spending. Some people also hire credit repair companies to help them increase their credit score. These companies can review your report and help you to dispute negative items in your report. They will help to remove those negative items and, your credit score will automatically increase.