Buying a new home requires a lot of effort and planning to secure the perfect deal. Some of the critical aspects homebuyers must look into while purchasing a new home are location, home warranties, size of the property, finding a realtor to help out, and cost. Another crucial detail home buyers must carefully consider while buying a new property is credit scores.
Buyers with low credit scores will find it challenging to get a loan to buy a new residence. Nevertheless, not all hope is lost. It is possible to buy a new home with a weak credit score. This post will help new homeowners understand how to buy a new asset with a low credit score. But first, it is essential to understand the range of low credit scores.
What Constitutes A Poor Credit Score?
Credit scores below 580 are considered low, and the chances of getting a loan from a lending institution get challenging. If your credit score lies between 580-669, your credit score will be considered fair by the lending institution. However, the chances of getting a loan that suits your requirements remain a challenge.
A score between 670-739 is considered good, and the possibilities of getting a loan are positive. Scores above 739, up to the range of 850, are considered very good, and getting a loan is easy. You must take note of the important institutions that calculate your credit score amount. The most noteworthy institutions are Equifax, Experian, and TransUnion. Make sure your scores are only calculated only by these organizations to make sure the rating is accurate.
Now comes the question of how to buy a property with a weak credit score? The next section will answer just that for you.
Buying A Home With A Weak Credit Score
It is possible to buy a home with a low credit score. Potential buyers must understand the following two aspects that will get implemented if they are purchasing a home with a week credit score:
1. Higher interest rates will be charged on your loan.
2. Larger down payments must be paid initially.
Another critical aspect to understand while buying a home with a low credit score is the different types of loans available. We’ve described the types of loans that you can opt for with a weak credit score:
1. Federal Housing Administration Loan
These loans are backed by the Federal Housing Administration and can be availed by first-time homebuyers or buyers who have not purchased a home in the last three years. To qualify for this loan, a credit score of 580 is required. However, if you pay a 10% down payment initially, you can be eligible for this loan with a credit score ranging from 500-579.
2. Conventional Loans
Buyers purchasing a new home can qualify for it with a credit score of 620. If you earn a high income or make a down payment amount initially, you will be eligible for this loan with a score lower than 620. It is essential to understand there is no set limit on the credit score for this loan. A lot depends on the lending institution and your income.
3. VA Loans
Veterans or members serving in the armed forces are eligible for VA loans. There is no set credit score required to qualify for a VA loan. Buyers with a score of around 620 usually make the cut. No down payment amount is necessary for members to buy a home with VA loans.
These loans can help you purchase a home with a low credit score. But you must improve your credit in the future to save money on interest and decrease the time on your mortgage. You can improve your credit score by expanding your current credit amount, opening new accounts, and clearing your pending payment ASAP.
Additional Aspect To Consider While Buying A Home With A Low Credit Score
Homebuyers can also purchase a home with the help of a co-signer. Though, the co-signer must have a better credit score than you. Your co-signer It could be your friend, family member, or spouse.
Although you must be transparent with the co-signer regarding the repayment plan and how you will go about the payments. You must explain everything to the co-signer so that he or she is aware of the necessary expenses needed to get paid in an emergency.