FICO is an acronym for Fair, Isaac, and Company which comes from the name of the firm that devised the idea of giving consumers credit scores. While nowadays anyone thinking of buying property knows what their score is, the FICO rating system has only been in place since 1989. There are winners and losers when it comes to creditworthiness. Those with scores between 300 to 649 are less likely to get low rate mortgage rates. Many times they can’t get mortgages at all. If you want to purchase a home, however, but are pessimistic about the odds that you’ll be able to, remember that Federal Housing Administration (FHA) requirements change over time. Applicants with a minimum FICO score of 580 are currently eligible for low down payments of 3.5 percent. You’ll be required to pay a ten percent down payment if your score is below that, but will still have an opportunity to apply. Read on for other reasons why a low credit score won’t necessarily stop you from purchasing your dream home.
Research Different Loan Options
It may be hard to believe that lender who specialize in helping those with bad credit exist, but they do. Bank of America and Wells Fargo are two well known financial institutions who offer loan solutions specifically to those with minimum credit scores for a home loan. Though they’ll probably require that you get home buying counseling from the U.S. Department of Urban Housing and Development (HUD). Other options are those that are government supplies and monitors. They are usually given through a third party, but that doesn’t mean they’re any less valuable or trustworthy. Be aware that these lenders can still require a minimum credit score, even on government issued loans such as VA loans.
Look Over Your Credit Report
Don’t just assume your score speaks for itself. You may discover errors. Do friends or family members show up on it? Mixed files, those in which people with identical names are mistaken for each other, are relatively common. You may have had your identity stolen and never been aware of it until mulling over the details and realizing that someone made some pretty pricey purchases under your name. Then, there’s the possibility that debts you paid off are not reflected. Sometimes the same debt appears multiple times. Outstanding balances can appear higher than they actually are. Never accept your FICO score at face value. Staring at tons of paperwork about you that’s been handled by software programs may seem pointless until you realize how much of it is incorrect.
Don’t be disillusioned by your unflattering credit score. With rising numbers of people leaving college with student loan debt, lots of Americans have less than perfect credit histories. That said, this shouldn’t keep you from entering the housing market. Seek credit counseling for further advice on how to proceed if need be, but don’t let your low credit rating make you give up on your dream of becoming a homeowner.
If you have a bad credit score, check out our seminar for financial literacy and learn how you can become financially independent enough to bring that score up.