How many of you renters out there have been turned down by a landlord because your credit is too low? Can I tell you a secret? You can probably buy a house with that score. 😎
Low Credit? No Problem!
Helping both buyers and renters land a home has taught me a few things. One key realization is that many home seekers who are super confident that they can find a rental home are equally as convinced that they are unable to purchase a home. Ironically, though, their rental applications are frequently shot down due to a low credit score. What they don’t realize is that the same credit score that a landlord scoffed at is a score that a mortgage lender would take in a heartbeat. Landlords will frequently require 650, 670, even 720 credit scores! Those are scores that most of my rental clients can’t even come close to (hence why they think they have to rent). However, a 620 score can easily secure a conventional mortgage loan. Don’t have a 620? How about a 580? You can go FHA with as low as 580 (heck,with 10% down, FHA will let you fly with 500). Lenders are much more lenient than people assume.
Low Income? It’s probably not as low as you think!
Many renters are also convinced that they don’t make enough money to secure a home loan. But when I ask them if they make three times the amount of rent (what landlords ask for these days) for the house they want to see, they laugh in my face. Well, the good thing about purchasing a home is that the lender doesn’t have a hard and fast income amount you must meet. Instead, they use a percentage called DTI, or Debt to Income Ratio. So, as long as your monthly bills (debts) plus your mortgage payment are within a certain percentage (the percentages vary by loan and lender), you can qualify for a mortgage. The lender will tell you exactly how much house you can afford, and then you just go out and find a house in that price range. And I can promise you there are houses available in every price range. Just this week, the tri-county area listed 227 homes for sale under $120,000.
But I want more
If you don’t like the price range the lender gives you, then you can work with him/her to figure out a way to afford a higher-priced home. The lender will tell you exactly which credit cards to pay off or down in order to increase your mortgage approval. If you still don’t like the price range, then you probably need a second job or a co-signer. 😉 You can also increase your mortgage approval by raising your credit score. Raising your score can lower your interest rate, making your monthly payment more affordable. Just like they can tell you how to improve your DTI, lenders can also tell you what to do to raise your score to get a higher rate or to just meet the loan minimums. I highly suggest talking to them first before trying to raise your score on your own. If you are close to meeting the credit score minimum, they can tell you exactly which card(s) to pay off and then petition the credit bureaus for a rescore once you do. You don’t have to wait 30 days for your credit to update. Your lender can take care of the updating for you.
You are probably capable of much more than you think
Your particular credit report may contain some other issues that could pose a potential threat to home buying, but don’t let that stop you from applying. Lenders will never just give you a straight up “denied.” They will inform you of your approval roadblocks and then educate you on several solutions. Lenders have all kinds of tricks up their sleeves to help you fix your credit and secure a home loan. So before you count yourself out of the home buying process, hook up with a lender and have them analyze your finances. They have all kinds of tricks up their sleeves to help you fix your credit and secure a home loan. 😊