Don’tlet your credit score dash your homeownership dreams.
Asmuch as we may hate it, numbers can determine much of what we’reable to do in life. Just like you need a high GPA to get into thecollege of your dreams, so too do you need a high credit score tosecure a loan on that dream homefor sale in Athens, GA. Butunfortunately, numbers don’t always reflect reality: Similar to howyour boyfriend distracted you in chemistry and caused your GPA toplummet, chance financial mistakes can affect your credit score, andbe hard to recover from.
“Today,bad credit isn’t just based on a number, but timing of recentderogatory activity like rolling late charges or a recent short saleor foreclosure,” says Joshua Vales, a mortgage loan originator withMountain West Financial. Bad credit extends beyond the three-digitscore we tend to use as our financial report card. But hope isnot lost if you’re wondering how to get a loan with bad credit.Here are a few ways you can position yourself and your finances toimprove your chances of landing a loan.
1.Save a larger down payment
Forthose with a credit score below 580, a larger down payment is anecessity — not an option. However, potential buyers with scores ina slightly higher range could use more money upfront to compensatefor a low score.This would likely mean a down payment of 20% of the home value orhigher.
A largedown payment signalsto the lender your ability to shoulder the loan despite your credithistory, increasing your equity in the home upfront and immediatelylowering your loan-to-value ratio. The idea is, the more you haveinvested in the home, the less likely you are to default — and theless risk you pose to the lender (even if your credit score is lessthan stellar).
2.Go with an FHA loan
Whenpresented with borrowers carrying low credit scores, Vales pointsthem in the direction of FHAloans —those backed by the Federal Housing Administration. The guidelinesfor these loans tend to be much more lenient than those owned byFannie Mae and Freddie Mac, which provide financial products andservices to make homeownership more affordable to low- andmoderate-income borrowers.
Accordingto the Department of Housing and Urban Development, the organizationthat oversees FHA loans, borrowers can be approved for an FHA loanwith a score as low as 580, as long as they are able to put down atleast 3.5%. Conventionalloans,on the other hand, require scores closer to 620 or 640. Beware,however: FHAloans often come with higher fees attached.
3.Know what to emphasize to a lender
Whilemany lenders use automated systems to automatically determine whetheryou are a good loan candidate, that doesn’t mean you’re out ofthe game should an initial run-through deem you ineligible. Lendersdo have the ability to go the manual underwriting route, setting alow score aside if you can demonstrate financial stability in otherways — for instance, showing on-timerent payments fora year or more, or cashreserves ofat least six months. A high income and lowdebt payments couldalso help portray you as a less risky loan candidate. Inaddition, be prepared to explain why your score is so low to beginwith. While having a large amount of consumer debt in default cansignal irresponsible spending and use of credit, medical and studentloan debt cantell a different story entirely.
4.Try a private mortgage
Largefinancial institutions might be the first place you think of to get aloan, but there are less conventional means to get a loan with badcredit — like aprivate mortgage. Privatemortgages can come from any party with the cash on hand to pay foryour home purchase in full, upfront — e.g., a family member,friend, or private lender. You then pay for the home based on theterms set forth by both parties. While there are plenty ofdownsides to this type of transaction (potentially high fees and ahigh probability of relationship turmoil), it essentially makes yourpoor credit a moot point.
Thebottom line? Poor credit doesn’t mean homeownership is out of reach
“Wenever just tell a client who has a goal of homeownership ‘no.’ Wemay say ‘not yet,’ but that is always followed up with a detailedplan on howto fix [their] credit,save money, and gear up for homeownership,” says Vales. Sowhile that one three-digit number might change the path to your goalof homeownership, don’t worry: You’ll get there eventually!
Blogsubmitted by: Cyndi Cobb of The Real Estate Market Place –Servicingthe Greater Fort Hood and surrounding areas which includes:Killeen,Harker Heights, Temple, Belton, Copperas Cove, Lampasas,Kempner, andNolanville. Feel free to call if you have any questions regardingCentral Texas Real Estate.
Author:Cyndi Cobb Phone: 512-564-0381 Dated: February 19th 2016 Views: 435 About Cyndi: ...
My last post covered the benefits of hiring a realtor. By now, yo
"Y'all were very personable. You made me feel like family. You worked around my schedule to show me houses until we found the perfect one for me. You did great, keep it up! I was impressed at how easy the process was. Y'all kept me informed the entire time and I appreciated that. Y'all did such a great job...I forgive the half of y'all that are Aggie fans! When you have a Realtor that takes care of you like family, why would you choose to work with anyone else?"