Can You Buy a House With Less Than Perfect Credit?

Can You Buy a House With Less Than Perfect Credit?

If you’ve read any of our stuff, you know that we think buying a house is a big deal. We’ve said it before and will say it again: where there’s a big deal, there’s usually a lot of misinformation. We busted the Lowest Interest Rate myth and now we want to talk about credit scores.

Myth #2: You have to have perfect credit to buy a house.

Not true. According to Governing.com, Experian reports credit scores ranging from 330 to 830. A score anywhere north of 800 is probably considered “perfect” credit. However, the average credit score in the United States is 687, according to our source, with Iowa ranking in the top 10 at 708.

Your credit score is just ONE factor involved in getting approved for a home loan. And, the higher your score, the better the interest rate will be. But, that doesn’t mean you’re totally disqualified if you have a credit score that’s below average or imperfect.

According to Bankrate, If you have a score of 740 or better, you’ll likely qualify for the best rate on a loan. If your score is less than 740, you can still qualify but you’ll probably have a slightly higher rate. It’s an affordable means to an end.

If your credit score is under 600 – you’re probably going to have some trouble qualifying for a home loan. But, our favorite lender at Home Services Lending that can do a loan with as low as 600 credit score.

Our Wells Fargo preferred lender also has solutions for lower credit scores AND, they also offer free programs to help correct or improve your credit.

A factor in the pre-approval process is debt to income (DTI) ratios. The bank will want to make sure you can pay your mortgage payments so they look at all the other bills you have to pay.

For example:

Let’s say you have good credit – a 700 score. Perhaps you have a job making $40,000 and you want to buy your first house. That’s $3,333 gross income a month. But, you have some other monthly bills to pay (debts). For example:

  • $1,000 a month that you pay to your school loan.
  • $500 for your car
  • $500 for a credit card payment

Those 3 debts alone add up to $2,000. Which is 60% of your gross monthly income. Even though you have a good credit score, your DTI is out of whack and a bank is going to think that’s a risk. And, it would be pretty irresponsible of them to give you a loan that adds another $1,000 debt to your monthly expenses.

The bottom line…

Perfect credit is certainly helpful when buying a house. But, average and imperfect credit will NOT disqualify you from getting a loan. Don’t be afraid to reach out to talk with someone about your options. Even if the timing isn’t right for you to buy a house today, you can start working on a game plan to help you reach that goal in the future. If you want to drop us a line and start talking about your options, we’re here for you. 

 

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Heather Wright

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