When buying a house, your credit score is very important. Mortgage lenders use this to check how responsible you are in borrowing and if you can pay back a loan.
However, this does not mean that if you have a high credit score, you will immediately qualify for a loan. No, it only provides you access to a lot of mortgage options and possibly lower interest rate. A low credit score, on the other hand, can limit your options and even go as far as prevent you from getting a loan.
In today’s time, it is found that millennials generally have a lower credit than that of the previous generation at the same age. If you find that you have a low credit score, don’t worry. You can still buy property.
In this article, we will discuss the home loan options and bad credit home loans Houston TX that you can avail if you have a low credit score.
Credit scores are usually calculated based on the following factors:
- Amount owed
- Payment history
- Length of credit history
- New credit
- Types of credit
Credit scores usually range from 300 to 850. When it comes to determining whether or not a borrower is qualified for a loan, lenders consider the credit scores as well as the debt-to-income ratio or DTI and income.
For different mortgage types, here are the minimum credit scores.
- FHA Loan: 580
- Conventional Loan: 620
- Department of Agriculture (USDA), and Veteran Affairs (VA) loans: no specified standard, but some loans usually require 640
When qualifying for a mortgage, you should remember that having a high credit score is not the only requirement. Each lender usually requires different credit scores. High credit score only provides you with a higher chance of getting approved for a loan.
When you have a low credit score, you can still avail of the following loan types:
FHA loans offer low down payment and lower requirements. You can get a loan with a FICO score of a minimum of 580. However, you need to mitigate factors such as a low DTI ratio. An FHA loan can allow you to have a higher DTI ratio in comparison to conventional loans so long as your credit score is at a mid- to a higher 600 range. So if you are someone who has a low income and debt, this is good news!
If you are an active duty military member, you can also qualify for a VA loan with lower requirements. You won’t be required to provide down payment, allowed to have a higher DTI and no mortgage insurance payments.
No standard credit score is required for a VA loan. But some require around 620 to qualify.
Lastly, you have to keep in mind that to qualify for a VA loan, you have to be serving the United States military at the moment, a surviving spouse of a service member who died in service or a veteran who has not remarried, or an honorably discharged veteran.
So with that said, get a loan today and purchase your dream home!