Is the 500 credit score a good or bad thing? Before digging into the process, many people might have told you certain things. The first thing every new homebuyer has heard is that home loans require a high credit score. But there is another side of the story which everyone has not really heard of. It is possible to get a home loan even with the 500 credit, believe it or not.
When you have no idea about the 500 credit home loans in Houston, you should note a few things. If your credit score falls between 300 and 579, you are in serious trouble. The private lenders use the credit score to determine your ability to repay the loan. You can get out of such an extremely bad situation if you can manage to have at least 500. Yes, there might be private mortgage insurance and 10% down payment tagging along, but it is doable. Therefore, an FHA loan must be your savior to receive a mortgage in a smart way.
If you are interested in finding out essential tips about home loans with below-average credit score, read on.
What Credit Score Do You Need to Purchase a House?
Every private lender maintains to approve the home loan application. If your credit score is above 700, you are in the green zone. Also, you can get the lowest loan rate. If your credit score starts to drop below 600, you are in the safe zone too. Yes, you cannot apply for a conventional loan; however, an FHA home loan works just fine. For example, the lenders offer two credit score requirements for the FHA borrowers. When your credit score is 580 or above, you can apply for a 3.5% down payment. If your credit score is between 500 and 579, you can apply for a 10% down payment. Therefore, it depends on the qualifications fixed by the lender.
Why Does Your Credit Score Sink Low?
It is hard to pinpoint every factor with so little time in hand but you can get a brief idea here. Length of credit history, credit utilization rate, current credit activity, missed or late payments, and total debt. Apart from this, the public information leaves a huge impact on lowering the credit score. If you have bankruptcy or blemish on the public record linked to the credit report, your credit score will be poor. Finding out the problem can fix the credit issue. However, time is your only best friend when it comes to bankruptcy. The waiting period varies; a person might have to wait for only one year and others 3 years, so you should ask the lender about it. It is not exactly to fix poor credit scores but you can work on the damage. By following a debt management plan and paying bills on time, the credit score will go up.
At the end, you should ask the lender about the credit score requirements or what you should do for your bad credit. So, find a lender who has worked for FHA loans before!
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.