As much as we may hate it, numbers can determine much of what we’re able to do in life. Just like you need a high GPA to get into the college of your dreams, so too do you need a high credit score to secure a loan on that dream home for sale in East Nashville. But unfortunately, numbers don’t always reflect reality: Similar to how your boyfriend distracted you in chemistry and caused your GPA to plummet, chance financial mistakes can affect your credit score, and be hard to recover from.
Credit worthiness remains one of the biggest blockades for some men and women considering a home purchase.
Debt Ratios
First, work to bring down your debt-to-available-credit ratio, and remember to not apply for any new credit within six months of when you plan to apply for a mortgage loan. This can have a negative impact on the credit score a bank gives you when approving you for a mortgage, and having the lowest debt-to-income ratio possible can help save you thousands.
Downpayments
For those with a credit score below 580, a larger down payment is a necessity — not an option. However, potential buyers with scores in a slightly higher range could use more money upfront to compensate for a low score. This would likely mean a down payment of 20% of the home value or higher.
A large down payment signals to the lender your ability to shoulder the loan despite your credit history, increasing your equity in the home upfront and immediately lowering your loan-to-value ratio.
Preapproval
While it may seem a matter of semantics, getting preapproved can save you a lot of disappointment and heartache when you place an offer on a home. Preapproval is a stronger ‘approval’ process than prequalification, and is virtually a guarantee. Prequalification is usually just an estimate, which most seller’s won’t accept offers on, especially in hot summer real estate months.
FHA Loans
According to the Department of Housing and Urban Development, the organization that oversees FHA loans, borrowers can be approved for an 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 closer to 620 or 640. Beware, however: FHA loans often come with higher fees attached.
Search All Nashville Homes for Sale
And of course, when searching for a home with bad credit, looking for cheaper homes or condos will always make the process easier! It’s less difficult to get a loan on bad credit for a home that’s priced low.
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