The American Dream has become less of a myth for many Americans as the economy improves. People are working to improve FICO credit scores in order to make the dream of homeownership a reality. Can it be done if your credit score is low?
Good News and Bad News
The good news is that you may be able to buy a new home even if your credit score is lacking. The bad news is that it may be more of a financial burden than you anticipate. People with FICO scores lower than 640 may find it difficult to get a loan for a house, however, there is a chance you may get qualified if you are willing to pay a larger down payment and if you can handle a higher interest rate.
What You Need to Know
The first thing you need to do is find out what your credit scores are. There are three different organizations that have your scores: Equifax, Experian and TransUnion. Contact each agency for a report of your credit.
These reports will tell you about your credit history. Check them to find out if there are any errors on your report. Errors can hurt your credit score. If you find any, you need to get them resolved as soon as possible.
Be prepared to pay a higher interest rate if you do qualify for a mortgage loan. You may end up paying over $100 more each month if your interest rate is higher. The reason people with lower credit scores wind up paying higher interest rates is because lenders use this as a way to protect themselves. People with low credit scores usually have a history of making late payments or skipping out on paying bills.
A loan insured by the Federal Housing Administration, also known as an FHA loan, may be available if you meet their minimum credit score of 580 or higher. You also need to make a down payment that is 3.5 percent of the home’s final purchase price.
These loans are insured by the Federal Housing Administration, but the loans still come from traditional mortgage lenders. You will not be able to cancel your private mortgage insurance during the life of the loan the way you can with a regular mortgage loan. This insurance may cost over $40 or more per month depending on the amount of money borrowed.
Rebuild Your Credit
Check your credit scores and if there are errors, get them corrected. Next, work to build good credit. It will take time, but in the long run it can save you thousands of dollars. Pay all your bills on time every month and pay down your credit card debt. This will help raise your FICO score.
Find out more about your real estate options by contacting The Minnesota Real Estate Solution. You can message us through our website or give us a call. We have the answers to your real estate questions.