Are you worried that having a low credit score will affect your dream of owning a home in Nashville? I’ve got a few tips to buy a house even with a low score.
It’s unfortunate but true that certain numbers can determine much of what we’re accomplish to do in life. Just like a higher GPA is necessary to get into great colleges, a high credit score is usually required to secure a loan on your dream Nashville home. And numbers don’t always reflect your potential qualifications realistically. Even a one-off financial mistake can affect your credit score, and be pretty difficult to recover from. In mortgage lending today, having bad credit isn’t only based on the actual number, but the timing of any recent derogatory activity like rolling late charges.
Here are some great tips for beating a bad score so you can buy your Nashville home!
Make sure to save for a bigger down payment
For those with a credit score under 580, a larger down payment is a necessity — not an option. However, potential buyers with scores in a slightly higher range could still benefit from offering more cash upfront to compensate for a low score. Try to shoot for a down payment of 20% or more.
A large down payment signals to the lender your ability to shoulder the loan despite a lackluster credit history, increasing your equity immediately and lowering your loan-to-value ratio. Even if your credit score is less than stellar, the more you have invested in the home, the less likely you are to default — and the less risk you pose to the lender.
Try to qualify for an FHA loan
When presented with borrowers carrying low credit scores, Vales points them in the direction of FHA loans — those backed by the Federal Housing Administration. The guidelines for FHA loans tend to be much more lenient than loans issued by Fannie Mae and Freddie Mac, which provide financial products and services to make homeownership more affordable for low- and moderate-income borrowers.
According to the Department of Housing and Urban Development, the organization that oversees FHA loans, borrowers can be approved for a FHA loan with a score as low as 580, as long as they are able to put down at least 3.5%. Conventional loans, on the other hand, require scores in the 620 or 640 range. But, while FHA loans may appear to offer competitive rates, they do often come with underlying higher fees attached.
You can always try to get a private mortgage
Bigger financial institutions might be the first place you think of to get a loan, but there are less conventional means to get a loan with bad credit — such as a private mortgage. Private loans can come from any party with the available funds to pay for your home purchase in full, upfront — e.g., a family member, friend, or private lender. You then pay for the home based on terms agreed upon by both parties. While there are plenty of risks to this type of transaction (potentially high fees for example), it essentially makes your poor credit a moot point.
The bottom line? Poor credit doesn’t mean homeownership is out of reach![showcaseidx shortcode encountered an error]