A low credit score can seem like a big obstacle to overcome on your journey to homeownership. But, don’t let it stop you!
Let’s take a look at what a low credit score is, loan options that may work for you, and how to improve your credit score.
What Is Considered a Low Credit Score?
According to each of the credit bureaus, here is what is considered a low, or poor, credit score:
- Experian: 300-579
- TransUnion: 300-600 (very poor) and 601-657 (poor)
- Equifax: 300-579
You can check out each of the three credit bureaus’ websites linked above for more information about the different credit score ranges, from very poor/poor to exceptional/excellent.
What Loan Types Should I Consider?
There are several loan programs available, but the following are what you can look into if your credit is “poor,” or even “fair:”
HOMESTAR accepts a 580 credit score on certain loan programs. Contact your local Mortgage Loan Originator for complete details.
Moving Forward on a Home Loan with a Low Credit Score
If you decide to move forward with buying a home with a low credit score, there are two things you need to consider:
- Down payment – There’s a reason why they say, “Cash is king.” When you have a low credit score, the more money you can put down, the better off you will be. And, if you don’t put down 20 percent or more, you will have to pay private mortgage insurance (PMI).
- Interest rate – The lower your credit score is, the higher your interest rate will be. And, with a higher interest rate comes a higher monthly mortgage payment (especially if you also have to pay PMI).
Other factors that are also taken into consideration include:
- Income you earn
- How much debt you have
- If you have any debt in collections
How Do I Improve My Credit Score?
A home loan can actually help raise your credit score in the future. Yes, you read that right! All you need to do is make sure you make all payments on time and pay off your other debts. After you have increased your credit score, you may have the opportunity to refinance your home and obtain a lower interest rate and payment.
Other Resources to Help You Establish, Improve, and Maintain a Good Credit Score
- If you haven’t established any credit yet, that’s okay! These tips can help you get started!
- Check out these 7 tips to boost your credit score before buying a home.
- Remember, you also want to keep track of your credit score on an ongoing basis. Here are 8 ways to maintain a good credit score.
Whether you choose to wait and buy a home once your credit score has improved or move forward with a low credit score, the good news is that you have options. Just be sure to decide what’s right for you!