3

Credit Is Crucial

Posted on January 7, 2016 by Ray Williams (NMLS #216267).

Credit is crucial when looking to purchase a home! No beating around the bush, if you have a FICO score below 600, regardless of the numerous advertisements you may be hearing, you have a big chance of not qualifying for a home mortgage, or being over promised and under delivered. This could cost you thousands of dollars and your place to live.  FHA allows for a 580 credit score BUT what you don’t read is that even though FHA allows there are very few investors/banks that will lend to you if your score is below 600. Even then, score alone doesn’t mean your loan will be approved.

If you find a lender who claims they can provide a loan with a lower FICO score, my suggestion would be to make sure you know what costs are involved and find out as much as you can upfront.  Do your research about that lender to make sure they can follow through. You don’t want to be under the impression you qualify, and once you are under contract for a home be told you don’t qualify and/or in order to qualify you need to put more money down/raise your score.

This has been a very common complaint that have been brought to our attention when clients call us after becoming frustrated at false promises. It is concerning, to us, how many times this happens with other lenders.  My best advice is to be patient.  When you look to get pre-approved and the lender advises that you work on your credit, then you should work on your credit.  Not get discouraged and try to find another lender who you think can get the job done.  Most of us work under the same guidelines and will have the same advice. If they don’t, you need to proceed with caution.  Most of the time when it sounds too good to be true, it is!

The first step you should take when purchasing a home and you know your credit is low, is take the time to fix and/or establish your credit (pay collections, pay down and/or off debt, establish good credit lines such as a secured credit card).  Look to get your credit score at a minimum of 640 middle FICO score (NOT Credit Karma score).  There is a reason their scores are free folks! When your middle FICO score is 640 it opens up more opportunities and loan programs. The second step is to have some money saved!  Even with down payment assistance programs, they require you to have a minimum of $1000 OR 1% of the purchase price into the transaction, whichever is greater.  That being said you will also need to be prepared for earnest money,(Typically between $1000-$5000). No down payment assistance program can help with these funds, since you need these funds when you write a contract to buy.  Your earnest money will go towards the closing costs and will also cover any required amounts for a down payment assistance grant/program. Bear in mind these programs may only cover your down payment, meaning who is paying your closing costs? Food for thought. Be prepared, and save money.

Last but not least, don’t be discouraged, if you are determined to purchase a home, you will.  If there is a will there is a way.  If you are unsure where to begin and you have further questions please feel free to contact us, we are always eager to help.

Leave a Reply

Your email address will not be published. Required fields are marked *