There is a misconception that you can purchase a house only when you have a high credit score. But in reality, you can purchase a home even when you have a bad FICO score. But for this, you’ll have to pay a higher interest rate and have a substantial down payment. Because of this, it’s advised to increase your credit score first and apply for a home loan later.
How to Purchase a Home with a Bad Credit Score
Apply for FHA Loans
FHA or Federal Housing Administration Loans were created to help low and mid-income borrowers become homeowners. This type of loan is offered by FHA-approved lenders. If you don’t meet the credit score criteria or are rejected by conventional loans, an FHA loan can be the perfect option for you.
Your DTI or Debt-to-income ratio has to be less than 43 percent to get this loan. Besides, you’ll have to show two years of verifiable income.
In this loan, if you have a credit score of 500, you’ll have to pay a 10% down payment. But if you have a credit score of more than 580, the down payment will come down to 3.5%. That’s why you should try to increase the FICO score as much as possible.
To learn more about FHA Loans, check their website or visit any FHA authorized lender.
Why You Should Increase Your FICO Score
If you can increase your FICO score even a few points, you can save thousands of dollars on your house loan. Besides, as I mentioned earlier, you’ll have to pay lower down payments when you have a higher FICO score.
To be approved for a conventional loan, you need a minimum FICO score of 620. So, currently, if your FICO score is less than 620, try to increase the score.
How to Increase the FICO or Credit Score?
In today’s housing market, there is more demand than supply. That’s why homeowners have the upper hand and don’t prefer the low-down payment that comes with FHA loans. Because of this, there is a high possibility that you won’t be able to purchase the house that you like. This is why it’s crucial to increase your FICO score.
To increase the FICO score, at first, pay all your credit card bills and decrease the Credit Utilization Percentage. By paying all your credit card loans, you’ll be able to see a jump in your FICO rating.
Apart from paying all your credit card loans, resolve all of your late payments. When you make late payments, it decreases your score drastically. That’s why if there is any payment due, pay it as soon as possible. Finally, consult a credit repair service expert about increasing your FICO score. You can also check and analyze your credit report and figure out how you can increase the score.
