Your Credit Does Not Have To Be Perfect
Many people renting right now would like to be homeowners. However, they assume they do not think they have what it takes to get a mortgage. Some think they do not have enough for a down payment. Others worry that they do not have income. Yet, others think that credit is the big stumbling block. The truth is that everyone can be a homeowner if you look through all of your options and develop a plan. Many potential home buyers end up self-selecting themselves out of the home buying process long before they ever hear a lender say no. All of the above reasons why renters do not think they can be home buyers are never a dead end. At worst, they are speed bumps. This is especially true for credit scores. It might shock you, but the reality is that you don’t need perfect credit to get a mortgage.
There are Many Mortgage Options for Home Buyers with Average Credit
All lenders are different and the same is true for all of the various mortgage products. Each one has their own unique lending requirements. While having great credit certainly helps you get a better mortgage rate, it is not a requirement in order to qualify for a home loan. There are many different mortgage programs for homebuyers with credit scores in the 600s or even the 500s.
FHA Loans
First-time home buyers can take advantage of FHA loans. FHA loans have several benefits for first-time home buyers who are worried about things like down payments and credit scores. If you are a first-time home buyer and you have a credit score of higher than 650, you can get a mortgage with a down payment as low as 3.5 percent. If you have a score lower than 650 then you can still get an FHA loan; however, you will need to put down a 10 percent down payment.
VA Loans
Members of the armed services can take advantage of VA loans. The Department of Veterans Affairs created VA loans to help members of their military and their spouses qualify for a home loan without perfect credit and without down payments.
Other Loan Options for Less-Than-Perfect Credit
First-time home buyers and members of the armed services are not the only ones who can get a mortgage with a credit score in the 600s. Many traditional lenders have mortgage products that will work for you. You might not be able to get the best mortgage rate possible, but there are options. The best way to find out about the options you have for your particular credit score is to speak with a professional mortgage broker. Mortgage brokers give you a big advantage over working with traditional banks because they work with hundreds of lenders and have access to thousands of mortgage products. Different home loans are made for different financial situations. Chances are, they can find one that is right for you.
Mortgage providers are also working hard to expand mortgage opportunities and increase the number of people who can become homeowners. For instance, Fannie Mae has introduced a few new programs to help individuals with less-than-perfect credit. Traditionally, Fannie Mae has a hard cutoff for their home loans. You must have a credit score of 620 or higher in order to qualify for a mortgage through them. These new programs help make it easier for home buyers to hit the cutoff.
Positive Rent Payment Program
The first change that Fannie Mae is making to how they calculate the credit scores of mortgage applicants is that they are taking into account positive rent payment history. If you have a history of making your rent payment on time, then they are willing to calculate that into your qualification decision, even if your score is not 620. The logic makes sense. Lenders use credit scores to help them determine whether loaning you money is a risky investment. They only provide you a home loan if they think it is likely you will make your mortgage payments on time and will not default on your loan. If you have a history of positive rent payment, then you already have a good track record of making payments for housing. For Fannie Mae, they think if you consistently pay your rent, then it is likely you will consistently make your mortgage payments
Median Credit Score Underwriting
The second change that Fannie Mae is making is that they are switching the way they calculate your credit score in their loan underwriting process. Your credit score is not really a single score. You have multiple credit scores from the three different credit bureaus: Transunion, Experian, and Equifax. Traditionally, Fannie Mae would use the lowest of your three median credit scores reported by these major credit bureaus. Going forward, they will be taking the average median score from the three. This will give you a much better chance of meeting their 620 score threshold if you are close.
Final Thoughts
Do not disqualify yourself from getting a home loan before you speak with a mortgage broker. Less-than-perfect credit should not prevent you from qualifying for a mortgage. With hundreds of lenders and thousands of mortgage options, chances are that there is a mortgage product that fits your needs.
If you are a renter and would like to become a homeowner, contact us. The team at Peoples Choice Mortgage will help you find the options that are perfect for you.
