Buying a house is one of the most cherished dreams of Americans. But lack of finance often restricts them from realizing this dream. Are you a first-time homebuyer? Then, you can buy a home with the help of an FHA home loan program. Offered by the Federal Housing Administration, the FHA-approved lenders offer this home loan.
Are you still worried as your credit score is 500? Well, not to worry. You can get approval for an FHA loan with a 500 credit score. And there are lenders, who offer FHA loan 500 credit score Texas. So, you can apply for this home loan program and get the approval.
But before you apply, here are a few things that you should know –
It is a good idea to build your credit when needed
If your credit score is below 620, you may want to improve it up before starting your mortgage approval process. If your score is at least 620, you will have an easier time getting a mortgage. Hitting that threshold will give you access to better mortgage rates and terms. Moreover, it will keep you from going through the type of scrutiny a lower credit score bracket can require. By paying the debts on time, not applying for new credits, correcting errors if there are any, you can improve your credit score and make yourself a better buyer.
Higher debt-to-income ratios make it higher
Your DTI ratio is the percentage of your gross monthly income, which goes to paying your monthly debt payments. FHA loans allow for debt-to-income ratios that exceed 54%. This is if your credit score is good enough. But if your credit score is lower than average, then it is always better to take steps to lower your debt-to-income ratio. This is because it will be difficult for you to get an FHA loan approval with a low credit score and a high debt-to-income ratio.
Cash-out-refinancing is on the table
It is a big one. If you already have a home, you can use your home equity to improve your credit. Wondering how? With cash-out refinance with your home. It allows you to pay off installment loans and credit cards that often carry higher interest rates than a home loan. Wrapping installment loans into a home equity loan payment can save you significantly. And it’s an option for borrowers with lower credit scores. Some lenders will do a cash-out refinance for borrowers with a credit score as low as 500, as long as they have at least 10% equity in the house.
Coming with a decent down payment is good for you
As the Federal Housing Administration insures the home loan, homebuyers can get approval even with as low as 3.5% down payment. But when your credit score is, it is always better to come with a higher down payment. The higher the down payment, the better you have the chance to get approval from the lender. Besides, the higher down payment can help you to get a lower mortgage rate. So, try to save as much as possible for the down or opt for a down payment assistance program.
Getting an FHA loan with a 500 credit score will not be difficult for you when you come with a higher down payment, lower debt-to-income ratio, and take steps to improve the credit score. So, start working on the mentioned things to ensure an FHA loan approval from the lender.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.