Many Americans dream of becoming homeowners one day, and while it may sound like a lot of work managing your own property, it has its perks and advantages that you just don’t get as a renter.
The main thing is that you won’t have a landlord to answer to about every tiny little thing, as you’ll be the landlord, and you’ll be in charge of all the repairs and improvements that are to be made on the property.
Apart from this, having a home to yourself means you can focus on being part of a local community and invest in actual relationships with your neighbors, without ever worrying about being evicted by your landlord.
However, there’s a lot more to buying a home than just providing a living space for yourself and your family, as property always has an equity value you can use for leverage if push comes to shove.
If you’ve got your own home, you can also focus on some more important matters like improving your credit score, paying your taxes on time, and if you’ve been diligent, even qualifying for a tax deduction.
Your credit score determines many things
While we’re on the topic of credit scores, it may be time to further explore this concept that’s been around for over a hundred years at this point, and even though many have argued it to be extremely flawed and faulty, it’s proven to be effective, otherwise, we wouldn’t have kept it.
The lowest credit score that lenders will approve you for a loan with is usually 500, which is practically hitting rock bottom, but not really, considering it can actually go much lower.
However, most lenders won’t settle for a person with a score of 500 if they’ve got a 2nd applicant with a better score, and you’ll want to be anywhere in the 620 to 740 range for optimal results.
If you’re able to do better than that, there’s no issue, and you’ll probably qualify for just about any loan without breaking a sweat.
As it stands though, some organizations can actually approve you for a loan even if your credit score is abysmal, and if you’re looking for an FHA loan, you can usually get approved with a score of 500, so long as you put forward a down payment of around 10%.
It’s more than one scoring method
If you’ve already sent in your application, you may want to know that it’s undergoing a thorough examination by the mortgage lender, as they have to shield themselves from risk as much as possible before approving you.
If you’ve explored how credit scores work before, you may already know that there are 3 separate bureaus that will calculate your score, those being Transunion, Experian, and Equifax, each of them with their own FICO score for your accounts.
There are bound to be some minor differences in the FICO scores you receive from these 3 bureaus, as each will report and value your credit history in a slightly different manner, meaning that there will be variations.
In order to circumvent this, the lender usually takes the mean value of the three scores, meaning that if you’re looking at a loan that requires a score of at least 580, your three values will have to reflect that.
Unfortunately, even if your credit score is admirable, a lender may not appreciate your current debt-to-income ratio, and sometimes you may just owe too much money to be a profitable investment for these lenders.
Essentially, the higher your credit score, the more doors will be open for you, although it’s not guaranteed that it will get you approved for a loan.
Buying a home with a low credit score
Even if your credit score is among the lower ones, this doesn’t mean you’re out of options, and you shouldn’t lose hope just yet, as there are dozens of housing opportunities out there for you to explore.
Among the things you could do, the most obvious one is actually working on improving your credit score, which can be painstakingly slow and difficult if you’re going through some financial struggles, but it’s still the best way to go about it.
Thankfully, the federal government offers more than a few assistance options for individuals and families looking to buy a home, and with the help of an FHA or a VA loan, you may be able to secure a property even with a credit score that wouldn’t be accepted otherwise.
These programs are funded by the federal government, but they’re run at the state level, so make sure to explore the options available in the area, if there are any, and if you find one that sounds like it could work with your current situation, inform yourself on how it works and what you should do to apply.
Currently, the FHA is the biggest home insurer in the world, and so long as your credit score is at least 500 or better, it’s one of the best places to begin your search.