We put an end to your worry, this guide below will help you to deal with low credit scores and get approved for a home loan. one of the most interesting phases of life is buying your first home. Excitement is a normal thing but you need to be cautious while taking every tiny step towards your first home. A small mistake can take a worst turn and can’t be reversed later.
Having Low Credit Scores for your Home Loan Approved?
However, one thing that might worry you is to deal with credit score or to be more specific, low credit scores. We share with you a guide to understand how things work with home loans and how to deal with low credit scores.
As a first-time home buyer, you’d have a lot of things to consider such as how much you’ve saved for the down payment, your family or a student loan. All these things might make you over-burdened already, but relax you don’t have to worry so much with home loan. You can even get home loans without having very good credit scores instead your scores might be enough to get your home loan approved.
All you need to know is the 3 important things and you can deal with your credit score easily and get your loan approved with much effort.
3 Step Guide for First-Time Home Buyers:
First Step is to Understand Credit Scores
First things first. Before you decide on whether you want a home loan to buy your first home, you need to know about credit scores. Also, you need to know whether you have the required credit score to make you eligible for a home loan.
In general, credit score is the first thing that lenders would want to check. Your credit score provides a credibility that you will make or not make regular payments within a period of 3 months after the payment is due and how well you’ve managed your finances. It provides a defense against those who would stop paying their debts or become tardy for more than 3 months. In case you fail to do the regular payment within the 3 month period, then the bank has the legal right to take possession of your house or property and this process is known as foreclosure. However, foreclosures fall on a higher end budget for the banks and thus, banks avoid it as much as possible. This is the reason why banks check your credit score at the first place to know about your payment history.
Secondly, to Know How Credit Scores are Evaluated
The reference value for credit score ranges from 300 to 850. The highest value 850 makes you the favorite loan applicant for any lender or banks. You require a credit score of 500 for getting approved for a loan.
Credit score gives the details about how you handle your finances and is calculated based on payment history, your credit length, and amount owed. For first time buyers, this can be a reason for not going for a loan as their credit score might be low due to the absence of payment history. And they might lack the experience to negotiate on the deal or to attend a closing. Age plays a vital role in lowering your credit score or simply lower your age, lower your credit score. The reason can be an inactive credit account.
Moreover it’s better to get in touch with a mortgage loan officer for a consultation that knows about your situation and can guide you on how to improve your score with credit repair or debt management programs.
In case you don’t have any credit card on your name or you’re yet to make any student loans, the first thing you need to do is get yourself on the credit scoring grid.
Finally, Process of Home Loans for People with Low Credit Score
Having a low score doesn’t imply a bad score; you can still get your loan approved. There are different types of home loans available based on your score such as loans with low down-payment offered by Fannie Mae home path mortgage.
Additionally, you can enjoy the benefits if you’ve served the military by using VA benefits to apply for a loan.
Having a low-credit score is not the end of the world. You can get your home loan easily even when you have low credit scores. Hope you have learnt about what credit scores are and how they are calculated. Also, how the process of home loans work for people with low credit scores. With this guide, you would have understood how it’s not as bad as you thought, getting approved for a loan isn’t an impossible task.
James Paul is a personal finance blogger who write at Basic Finance Care covering everything about personal finance management and frugal living.