Credit Scores Needed for Home Buying
Many people have desires to buy Bloomington Homes, but don’t think they can qualify for a mortgage loan because of low credit scores, or a bad credit history. To qualify for a traditional mortgage loan, you need to have fairly good credit, but the FICO number isn’t the only variable that makes one eligible for a home loan. If you have a credit score of a minimum of 640, you can probably get a loan. When a FICO credit score is higher than 720 you can probably qualify for the best interest rates as long as you meet other loan qualifications. Loans backed by the FHA typically have less stringent credit requirements.
Important Mortgage Qualifier – The DTI Ratio
The DTI or debt to income ratio is also an important factor lenders consider when underwriting mortgage loans. They don’t just want to see that you have a proven history of paying your bills, they want to see that you have the income to support the mortgage and all your other debt . The general rule of thumb is that lenders will allow a 35% total debt to income , and from that debt, 28% of it can be for the home loan. By not having consumer debt: credit cards, auto loans, student loans, etc. you can afford a more expensive house payment. In reality, many FHA loans and other Fannie Mae and Freddie Mac programs will permit debt to income ratios much higher than 35%. Talking to a mortgage lender can give you specific details about the debt to income requirements for specific loan products.
If you have too much debt, you won’t be able to buy a house even if you have an 800 fico credit score.
Home Buyers with low credit scores, but good income to debt ratios , and a decent down payment can usually still obtain a loan through hard money or private lenders. These rates nearly double the monthly mortgage payment .
Options for people with bad credit scores
If you have poor credit, try to fix it as soon as possible . Credit is repaired by paying your bills consistently. Other options to purchase real estate with bad credit include: Rent to Own, Lease Options, or Seller Financing.