If you have decided that the time to purchase a new home is closing in, you have to first realize that your credit score is so crucial. So why is your credit score that important? Well, it’s the factor that lenders will use to determine your creditworthiness. It is by far the single most important factor that will have a huge say on whether you receive a mortgage or not.
Thus, you will have to ensure that you keep your credit in check months before you decide to take a mortgage. This is because your credit may be less than perfect and in order to improve it, you need time. Your credit report may have errors and this at times may take a long time to clear up. This is also true if your credit needs improvements.
Other factors lenders consider when you request for a home loan
While your credit score has a huge impact on the success of your loan request, other factors that will determine if you get a home loan at http://finance.yahoo.com/news/announcing-offer-2500-installment-loans-052900775.html include:
- Debt load- this is where all your financial obligations and debts such as student loans, child support, credit-card balances among others are taken into account.
- Employment history- this is where your job history is taken into account so as to prove that you are capable to not only pay for your home but to keep it as well.
- Proof of income is where you not only fill in a field with your source of income but you provide paper works of your previous transactions as proof you have a reliable income.
- Other factors may include living expenses, property deposit, social media, and repayment history among others.
Lowest possible credit score to acquire a home loan
For an FHA-backed loan, a score of 600 is considered a suitable score to get a home loan. A credit score of 600 is not that good, it’s a poor credit score and not up to the standards that most lenders require and hence you will pay high-interest rates. While the FHA allows a person with a 500 credit score to borrow, it all comes down to whether the borrower will find a lender willing to take that risk.
There is no fixed credit score that offers assurances of acquiring a home loan. However, in order to qualify for a home loan the higher the credit scores the better your chances. The FHA’s minimum of 500 credit score is a bad credit score and it’s quite difficult to be offered a loan with this score, but if offered you will be paying the highest interest rate.
According to a recent study, most home loans are approved to people with a score of above 580& social security. The study shows that it has been a long time before anyone with a credit score of below 580 was approved.
Addressing your poor credit
While it is possible to receive a home loan with a bad credit, a better plan is to build your credit. It may take a couple of months but the wait is worth it. You not only increase your chances of getting a home loan but you also save money since you will be charged low interest as opposed to when you have a worse credit score.