Owning a home is a part of the American dream. Most prefer to put their money towards their monthly mortgage payment as opposed to rent. If you’re one the millions of Americans who has a less than perfect credit score, buying a house doesn’t have to seem out of reach.
Debt may appear to be an inherent part of life, but a poor credit score doesn’t have to confine you to renting. In this article, we’ll explore how to go about buying a home with bad credit- or no credit at all. When you land your perfect first home, protect your investment with an Indianapolis Home Insurance policy.
It’s common practice for mortgage lenders to check your credit score which is calculated based on the information that appears on your credit report. Five aspects impact your score, each varying in importance: payment history (35%), debt-to-credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit (10%), says Trulia.
The perfect credit score is 850, but this is rare for people to possess. The lowest you want your credit score to be when applying for a home loan is 660. However, the low 700s is also considered satisfactory for many mortgage lenders. This number will affect your interest rate and the likelihood of being approved for a loan.
There are special programs designed to cater to poor credit situations. For example, the Federal Housing Administration (FHA) allows people with a credit score of no less than 580 to get loans with a 3.5% down payment. Or, you can apply for a private mortgage insurance program to ensure you pay your loan on time.
Improving your score.
The easiest way to boost your score is to pay your bills on time each month. Whether it’s rent, car loans, credit cards, or even utilities, paying on time can boost your score.
Next, you can pay down your existing credit card debt. This is easier said than done. However, freeing up some of your credit limit will boost your score. You can also request a credit limit increase by calling your creditor to boost your debt-to-utilization ratio.
About Walker & Associates
Your home is where your heart is, and we understand that taking the right steps toward protecting your investment provides the necessary peace of mind. For the insurance aspect of house hunt, contact us online at Walker & Associates Insurance, or by phone at (888) 760-7292.