Buying a Home in Todays Market: Part 1–Credit

I think one of the biggest misconceptions that the current mortgage and real estate environment conveys to potential buyers is that in order to buy a home in today’s market, they need to have excellent credit and a substantial down payment.  While it is fair to say that lenders have raised their standards and tightened their guidelines and new laws have been created to ensure that the lending climate of a few years ago never happens again, you don’t have to an 720 credit score or 20% down to buy a home.  While it definitely is preferred that you have an exceptional credit score and a large amount of money down, it is not a deal breaker.  Let me explain:

CREDIT

It’s no secret that just a few short years ago, people who had credit scores in the low 500’s were able to buy a home with no money down.  In some instances, they didn’t even have to verify assets, income, or employment.  Those days are no more.  Many of the lenders who offered those loans are now out of business or completely changed their lending standards.  While buying a home with a 526 FICO score is an absurdity now, there is hope if you don't have perfect credit.  When it comes to doing an FHA or USDA loan, many of the lenders we use will allow a 620 FICO (we even have one that goes as low as 580).  Our VA programs have a minimum score of 640.  When it comes to conventional loans (non-government insured loans), a higher credit score is a definite necessity.  For a loan with only 5% down, many of my lenders require a 700 FICO score with a handful going down to a 680.  However, if you are able to put down 20% or more, many of those lenders will allow a credit score of 620. 

Keep in mind that lender guidelines change all the time.  As recently as this, week some of our lenders have RAISED their minimum credit scores.  It is ideal for any borrower to make sure they do their best to raise their credit scores to increase their potential to secure a loan.  You can do this by making sure that you pay all your obligations on time, try to not overextend your current accounts, correcting errors on your credit report, and limiting credit report inquiries.

If you are in the market to buy a home, but feel that your credit score is too low, contact me so I can assist you in trying to help you understand your credit and what steps you need to take to help you get a home loan.  The higher your credit score, the better your chances of getting a home loan.  Give me a call and I’ll be more than happy to share with you what you need to do to get moving in that direction.