Low Credit Score and Buying a Home?

Many factors impact your credit score and often the factors which can impact your credit score the most are things that may be completely outside your control. If you were laid off, have recently gone through a divorce or found yourself facing large medical expenses for an unexpected health crisis your credit score may have taken a hit, and taken a hit for something which wasn’t your “fault”, leaving you with a low credit score. Many people who have faced economic hardships and who don’t believe that their corresponding credit scores accurately reflect their ability to repay debt on time may be unsure if they will be able to purchase a home with a low score.

The good news is that there are many lenders and mortgage loan programs available for individuals with less than perfect credit. Some lenders are able to work with borrowers with as low credit as the 550’s, and some federally-backed mortgage loan programs like VA loans and USDA loans do not have any minimum credit score requirements.

One of the most popular mortgage loan products on the market today are FHA loans, which are government-backed loans extended through the Federal Housing Authority. Because FHA mortgage loans are backed by the federal government, they are often less risky to lenders, making them a popular choice for lenders and borrowers alike. FHA loans currently have a minimum FICO credit score requirement of just 580, although of course the higher your credit score is the lower your interest rate is likely to be. Another attractive feature of FHA loans is that they have low down payment requirements, which means that you can use more of your money to pay down any debt that may be negatively impacting your credit score versus having to use it for a sizable down payment.

If you have a low credit score, don’t give up on your dreams of home ownership. There are many lenders and loan programs who understand that individuals are not wholly defined by their credit scores, and who will work with individuals with fair and even poor credit scores.

If you know that your score is less than perfect and you are in the initial stages of beginning to think about home ownership, we suggest that you focus also on rebuilding your credit score. While you shouldn’t put your home ownership plans on hold just because you don’t have perfect credit, the higher you can bring your score the more attractive loan terms and interest rates you will qualify for. Even minor adjustments upward in your score may save you thousands over the lifetime of your loan. Remember too, that if your score is less than perfect now you may also be able to refinance your mortgage loan down the road when your score is higher.

Contact our home loan mortgage brokers in San Ramon for home mortgage loan and mortgage refinancing.