- 1 What Credit Score Is Needed To Buy A House
- 2 The Biggest Mistakes To Avoid When Buying A House
- 3 What Credit Score is Needed to Buy a House
- 4 What Credit Score is Needed to Buy a House?
- 5 which credit score is used when buying a house
What Credit Score Is Needed To Buy A House
Getting ready to buy a house is an exciting time for anyone. Searching for your dream home is no easy task, but all of the hard work is worth it once you find the right one.
For most people, the first step in the home search process is determining their budget. Buying a home is a lifelong commitment, and thus a lot of thought should be put into budgeting and making the right purchase. Luckily, there are now hundreds of mortgage lenders and credit lines from which to borrow from, meaning you can purchase a house without necessarily having the funds to pay for it in full. Even if you do, most people choose to finance their homes, as this is more financially safe.
Minimum Credit Score to Buy a House
“I don’t know if my credit score is high enough” or “What is the minimum credit score needed to buy a house?” are among the most common thoughts going through people’s minds when contemplating purchasing a house.
Myth Busted : There is NO minimum credit score needed to buy a house.
Now, this doesn’t mean that you can buy any house with any credit score, but it means that it’s not as difficult to get a mortgage as you might think.
There’s thousands of lenders who provide mortgage services, and each one of them evaluates potential candidates differently. Some lenders focus solely on your credit score, while others put a higher emphasis on your income. A few other big factors are your down payment, past payment history, spending habits, and job stability.
The main things evaluated by mortgage lenders are:
- credit score
- down payment
- spending habits
- job stability
- payment history
- length of credit history
A lot of lenders take your down payment into consideration. The higher your downpayment is relative to the total price of the house, the higher your chances of approval. A higher down payment is also likely to lead to a lower APR.
Deciphering how lenders evaluate candidates may sound like a complicated science, but it’s really not. What it boils down to is: whether or not your profile on paper makes them believe that you’ll be able to make your payments. A person with a perfect credit score but no stable income may be denied while a similar candidate with a low credit score but stable employment and income might be approved.
Pitfalls To Avoid When Shopping for a Mortgage
Now that we’ve broken through that myth – we can talk about what really matters. Most people focus on their credit score and whether or not they will be approved, when what they need to focus on is the lending terms.
The truth is, even if you have a terrible credit score, there probably is a lender out there who will approve you. HOWEVER, they will give you terrible terms – a high interest rate, late payment fees, and a long loan term. There’s dozens of institutions out there that make money by deceiving home buyers and giving them ridiculous loan conditions.
Even if you have a low credit score, don’t let yourself be fooled by the many institutions that offer you “guaranteed approval” or “instant approval”, those are often the ones that use this strategy: taking advantage of people with low credit scores and giving them interest rates that are much higher than the industry average.
Buying a house is likely one of the most long-term commitments you’ll make in your life, so it’s important that you prepare for it correctly. There’s a few things you should research and take into consideration before looking for a mortgage lender, or else you run the risk of having a lender take advantage of your lack of knowledge.
This is one of the first things that a creditor will look at, so it’s important that you know what they will see. Take a look at your credit scores. Note that there are several different reporting institutions, including Experian, FICO, TransUnion and VantageScore.
Analyze your spending history, the amount of debt you carry, and your payment schedules. Do you have one negative mark on your credit history which is bringing your score down, but 10 years of on-time payments? Why do you have a certain credit score? You should know these things so that you can negotiate your mortgage.
You should know what the average scores and profiles are around you in order to know how you compare to them. The institutions you apply to will be comparing you to others, so you should know how you stack up.
It’s important to know this because it will give you a better idea of what loan terms you should qualify for. If your statistics are above average, then you should be expecting to get competitive loan terms. You wouldn’t pay $5 for an orange when every other place sells them for $1 – the same goes for your mortgage.
Another important thing for you to take into consideration is the current average loan rate. If the average APR is 2%, then you should by no means accept a mortgage with a rate over 8%.
Again, you need to be informed in order to make the right decision. Too many people lock themselves into loans with terrible rates just because they weren’t properly informed.
If you’re getting a mortgage, there’s a lot more to budgeting than the price of the house. Your loan terms will have a huge impact on the total amount of money that you end up paying.
You will first need to decide on your downpayment. Remember that the bigger your down payment is, the less you will have to pay in interest, and the more likely you are to get approved on good terms.
Then you will need to make a monthly budget – how much you can pay per month. We all know people tend to spend more on their home than they were expecting, so set your ideal monthly payment, and then set your MAXIMUM. You need to have a set number that you will not go above, otherwise you may get swayed into purchasing something you can’t afford.
Once you’ve done all your homework and you’re well informed on your situation, the context of the market rates for home buying, and you’re sure of your budget – you need to set your expectations. You should write down that loan terms you would like, as well as what things are important to you (eg – late payment fees, early termination fees).
Then you will have parameters by which to guide yourself and ensure that you make a smart decision. It’s easy to get convinced or tempted to buy something you can’t afford, but following these steps will help you make the correct decision.
Instead of looking for your house first, shop for a mortgage. If you do your research to find the right lender, it’s very likely that you will be offered better terms than what an agency will offer you. It’s also a good idea to get pre-approval. This means that you get pre-approved for a certain amount of money before applying for the specific price of the house.
Pre-approval will also give you a better idea of what price range of houses you should be looking at. It would be a huge disappointment to find your dream home and then realize you can’t afford it. You’ll also save yourself time by looking only at houses that you can afford.
Remember to take your time looking for your home, and never rush into making a purchase. There may not be a minimum credit score needed to buy a house, but just because you’re approved to buy a house, doesn’t mean you should. Make sure that you have a financial plan set in place to pay off your mortgage, and that you have the financial stability to carry through with that plan.
The Biggest Mistakes To Avoid When Buying A House
Many people cherish the fond ambition of owning a place they could call their own. For some, it remains the biggest investment of their lives. For others, it serves as the quintessential symbol of achievement. The process of finding that dream house is not simple by any means. Initially, people need to expend a lot of effort and time to find that perfect house in the perfect neighborhood. Then, they need to consider any remodeling projects that they might want to take up. Once they’re satisfied with the house, they review the finances and the paperwork. After closing the sale, they begin the long-drawn processes of settling down in their new house as well as repaying the loan.
Why Homebuyers Usually Err When Buying a House
A home is not just a home. It also represents a long-term financial investment and a commitment. Unfortunately, however, many homebuyers head into the activity with no idea of the time and effort they need to invest. From searching for the best deals to reviewing the paperwork, they need to examine every detail minutely. However, they tread with haste rather than caution. Thus, they often end up ignoring the very facts they need to heed. This is why their dream project turns into a financial nightmare very quickly.
First time homebuyers usually make the mistake of taking things lightly. Newlywed couples, for instance, venture into the real estate market with dreamy eyes and romantic notions. Some of them feel that buying a house would be much easier after taking the biggest plunge of their lives. This makes them oblivious to the fine print associated with their dream house. As a result, they end up experiencing several problems, which they could have avoided.
Similarly, renters grumble about wasting their money on a property that they don’t own. This makes them feel that buying their own home would be a more cost-effective proposition. As a result, they often end up purchasing one of the first houses they come across. Even professionals – who might otherwise be financially savvy, commit some elementary errors.
Top Things to Avoid When Buying that Dream Home You’ve Got Your Eye On
Being aware of the pitfalls to avoid when buying a house could be worthwhile. It could make the difference between taking on a humongous burden of debt and building financial security. Here is a list of blunders to avoid, when you decide to buy your first (or next) home.
- Not Taking the Time to Understand Housing Market Trends: If you’re keen on purchasing a house, you need to do your homework properly. That includes understand housing market trends. Variances in supply and demand cause fluctuations in the housing market. At times, it becomes a seller’s market (conducive to those looking to sell houses). On other occasions, it becomes a buyer’s market and favors those looking to buy houses. The prevailing economic conditions, consumer confidence levels and interest rates also influence the housing market. Therefore, consider reading various newspapers, magazines and websites that pertain to the real estate sector. This would give you significant insights into the current state of the market.
- Not Having a Budget: As mentioned earlier, buying a property is a long-term financial commitment. If you take a home loan, you would also need to pay a monthly mortgage. This would be over and above your current expenses. Not having a budget could lead to your making incorrect assumptions about what you can afford. Therefore, make a budget that enlists all sources of income and all expenses. At all costs, avoid maxing out your spending power as you might require cash for other purposes later. It would also be worthwhile to ensure that all your paperwork is in order at this stage.
- Not Checking Your Credit Score: The companies you make payments to report your payment details to credit bureaus like Experian, Equifax and Trans Union. These credit bureaus compile your credit report. Your credit report contains the details of your past financial history, including your timeliness in making payments, the kind of accounts you have and when you opened them. It also contains your credit score. Your credit score is a three-digit number, which ranges from 300 to 850. Lenders refer to this score for evaluating your creditworthiness. Each time you require new lines of credit i.e. a home loan, the lender checks your credit score from these bureaus. Based on your credit score, the lender would decide:
- Whether to extend credit to you or not and,
- The terms on which to extend credit to you
If your credit score is below par, the lender could either reject your application for credit or alternatively, they could offer you credit at steep interest rates.
- Not Getting a Preapproved Home Loan: Several homebuyers find out their credit scores. Then, they wait until they find the house they want, before they think about the loan. However, property sellers prefer to avoid additional time delays and hassles by prioritizing buyers, who have preapproved loans. They do so because buyers, who apply for a loan after making a bid, might not get the desired amount of financing they required. Therefore, having a preapproved loan enhances the value of your bid in the eyes of the seller.
- Neglecting the Value of a Home Inspection: Sellers and brokers associated with sellers often highlight the positive aspects of the property. At the same time, they also downplay the negative ones. Therefore, avoid taking their words at face value. Instead, consider engaging professionals for carrying out an inspection of the property. From structural issues to plumbing problems, these inspectors would help you identify the additional money you would need to spend for repairing the property. Their advice could help you secure a more advantageous deal.
- Neglecting the Hidden Costs: Homebuyers often make the mistake of neglecting minor costs associated with the house. Therefore, they don’t look beyond their loan amount and their monthly mortgage payment. By doing so, they forget several minor expenses that could add up to several thousands of dollars. These could include:
- Appraisal Fee
- Credit Report Fee
- Notary Fee
- Escrow Fee
- Homeowner’s Insurance and,
- Property Taxes
- Ignoring the Resale Value of the House You Want to Buy: When you’re buying a house, you would not think of putting it up for sale. However, life comprises various unexpected events and changes e.g. job transfers, illnesses etc. These changes could make you put your house up for sale. Therefore, you need to consider whether:
- You would find it easy to sell your house later and,
- You would receive a good sum toward the house, which you could use for purchasing another one
- Trusting Verbal Agreements: Homebuyers often experience situations where they do all the hard work to convince sellers into accepting their bid. However, a day or two later, they find that another party has offered a better deal, thereby making the seller go back on the agreement. To avoid this, never accept verbal deals or agreements as final. Verbal agreements are not binding. Therefore, always ensure that you secure property agreements in writing to safeguard your interests. In addition, ensure that you go through the fine print to understand the contract or agreement thoroughly.
As mentioned earlier, a home is not something you would purchase several times in your life. Hence, it becomes imperative that you get everything right the first time. By knowing the pitfalls you need to avoid, you could ensure that you begin your association with your new house on the right foot.
What Credit Score is Needed to Buy a House
Using a 650 Credit Score to Buy a House
We all have our dreams of the perfect home, white picket fence, and a family dog (or cat). But what credit score is needed to buy a house? Does having a credit score of 650 mean that those dreams won’t become a reality? Luckily, no! You can still realize your dreams, and purchase that home. A 650 credit score mortgage is possible for many people. It may be a bit more difficult for someone with a 650 score than for someone with a score above 700, which is a more ideal credit score to buy a house. But if you’re looking to get a mortgage with a credit score of 650, here is what you need to know.
Conventional vs FHA – 650 Credit Score Mortgage
There are really two types of mortgages that you should know about, conventional and FHA. So what’s the difference? And why does it matter to people with a 650 credit score mortgage?
What is a Good Credit Score to Buy a House with a Conventional Mortgage?
A conventional loan is when the bank lends money to someone based on their credit history. The buyer needs to have a down payment. This down payment is usually between 3 and 20 percent of the cost of the house. Buyers who have lower credit scores may have to put down as much as 30-35%. This is something to keep in mind when you are looking to buy a home with a credit score of 650. It can be helpful to seek out smaller, local banks when you have a credit score of 650 and are looking to get a mortgage. Often these smaller lenders can approve loans based on references etc. instead of simply relying on the credit score alone to approve or deny a loan. Larger lenders are often less forgiving of a low credit score. The good news for people with a credit score of 650 is that according to bankrate.com the new minimum for a conventional loan is a credit score of 620. The good thing about conventional loans is the process can go much more quickly than with an FHA loan. Also, you can build home equity more quickly since you probably had to put more down for a down payment. The down side is that interest rates are usually based on credit and the size of the down payment you can afford. Therefore, a 650 credit score mortgage will likely be looking at higher interest rates.
FHA Mortgage Loans and Credit Score Needed to Buy a House
An FHA loan is a loan that is guaranteed through the Federal Housing Administration. It is government program that protects lenders so they are not responsible for the money that is loaned. According to FHA.com with an FHA loan you typically need to have a minimum credit score of 580, but at times they may accept people with scores lower than 580. The wonderful thing about FHA loans is that you can typically purchase with as little as 3.5 percent down. Sometimes you can get a fully financed mortgage through the Federal Housing Administration, so that you can purchase a home with no money down. The downside of having an FHA loan is that the home needs to be inspected and meet certain criteria. The appraisal is done by an FHA approved appraiser. This can be one additional hurdle that you must jump through in the home buying process. Another drawback is Mortgage Insurance Premiums (or PMI). If you put less than 10% down on a home you may have to pay these premiums for up to 11 years. The last and most obvious drawback is the amount of interest you will be paying as a result of putting less money down. The larger the amount of money borrowed, the more you pay in the long run.
As you can see, there are options for you when considering using a 650 credit score to buy a house. It is important to consider the pros and cons of the types of loans out there, and do your research so that you know what you are getting yourself into. With a credit score of 650 it is possible to get a conventional or an FHA loan. Ultimately, the more money you can pay up-front for your home, the better off you will be with your 650 credit score mortgage.
Now that you know you can get a 650 credit score mortgage, what else should you know? Since the goal is ultimately to raise your credit score above a 650, keep in mind your financial situation when purchasing a home. It is important to create a budget and to consider your income and outgoing expenses when calculating the size of monthly payment you can afford on your new home. There are wonderful resources of the web to help you in determining this. Budgetworksheets.org can assist you in determining your monthly expenses. If you get yourself into a mortgage with high monthly payments that hinder you from keeping up on other expenses, you may be in no position to better your credit score, and may even do the opposite. Once you have determined what you can afford for a monthly payment, you can use an online calculator to figure out what price-range you should be looking in for a house. If you are going with an FHA loan, FHA.com has a mortgage calculator to assists you: www.fha.com/calculator_payments. With a conventional loan it is best to rely on your banker to help you determine what you can afford, as the online calculators for home buying can be misleading.
Finally, if you have been wondering what credit score is needed to buy a house and are very serious about increasing your credit score to a score of higher than 650, it is best to be conservative when buying a home. Many people simply try to achieve the lowest credit score to buy a house, and forget to consider all the additional costs of taxes, insurance, upkeep etc. Many people purchase a home at the very maximum their budget allows, leaving little or no wiggle room when expenses come up.
Here are the things to remember when getting a 650 credit score mortgage and trying to increase your credit score at the same time:
- Save for a substantial down payment.
- Have additional money in savings for an emergency fund.
- Continue paying down debt.
- Consider debt payments in your monthly budget plan.
- Buy conservatively (don’t max out your budget).
What Credit Score is Needed to Buy a House?
If you are trying to buy a new home, you have probably heard that your credit score or home buying credit affects this process. However, you may be wondering exactly how it affects your ability to buy a home. Generally, you will need a credit score of 660 to obtain a mortgage. The qualifying credit score used to be as low as 580 points. However, since the mortgage crisis of 2008, banks are becoming more conservative in their lending practices.
Did you know that your credit score affects your interest rate? The lower your credit score, the higher your interest rate will be. This means that if you have a bad credit score, you will end up paying more than somebody with a good credit score. Additionally, you may need to put down a larger down payment than usual. So essentially, having bad credit doesn’t mean that you will not be able to obtain a home loan. What it does mean is that you will have a greater threshold for home buying qualification, which could include a higher interest rate and larger down payment.
Stop right there. Do not throw up your hands in frustration and think that you may not be able to obtain a home mortgage. If you have bad credit, you can still obtain a home mortgage loan. The first step is to get a copy of your credit report, dispute any items on your credit reports, and then work on restoring your credit. This will put you on the road to credit worthiness.
-> How to Obtain a Copy of Your Credit Report
Since you know that your credit score is important, you may be asking how to find my credit report? Here’s how:
You may obtain a free copy of your credit report through a straightforward process regulated by the fair credit reporting act (FCRA) at annualcreditreport.com or by calling 1-877-322-8228. Each of the big three national credit reporting companies, Experian, Equifax, and Trans Union, must provide you with a copy of your credit report at least once a year.
Your credit report will include personal information such as your address, your debts, whether or not you have filed for bankruptcy or have been sued. The big three credit reporting companies furnish this information to landlords, employers, and insurers, who are trying to evaluate your credit worthiness.
Review Your Credit Report Closely
Make sure that you examine your credit report closely to check for any possible discrepancies. If you have not been keeping good fiscal records thus far, you could still check for discrepancies. For example, check all of the addresses on your credit report to make sure that they have that they match your current and previous known addresses. If you do notice any discrepancies in financial amounts on your credit report, highlight them so that you can to dispute them.
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😡 How to Dispute an Item on Your Credit Report
If you notice any discrepancies or inaccuracies on your credit report, you have the right to dispute them. The FCRA stipulates that the information provider and the credit reporting company are mutually responsible for correcting inaccuracies on your credit report when you notice a discrepancy on your credit report.
- Contact the credit reporting company in writing. Let them know in detail what information you feel is a discrepancy on your report.
- Ask that the discrepancy be corrected or removed from your credit report.
Tip: Make sure that you send your dispute letter by certified mail so that you can receive a return receipt once the credit reporting company has received the letter.
- Upon your request, the credit reporting company could mail corrected versions of your credit report to anyone, who has received it in the past six months.
- If you’d applied for a job in the past two years, you could also ask that a corrected version of your credit report be sent to any past prospective employers.
- If the investigation does not resolve the dispute on your credit report, you could ask that a statement of a dispute be included your subsequent credit reports.
Since your credit report will be considered during the home buying process, it is in your best interest to start restoring your bad credit. This is true especially if you look at the credit score benchmark of 660 that you will need to obtain a mortgage. If your current credit score falls off of this benchmark, you can use the following tips to repair your credit score.
Let’s say that you have discovered and have resolved discrepancies on your credit report. Your credit report will be adjusted in your favor. Resolving discrepancies are one big step towards restoring your good credit. Additionally, you may do the following to restore your credit:
Watch Your Debt-to-Credit Ratio
Try to make sure that your debt-to-credit ratio is 30% or lower. The lower it is, the better it reflects on your credit report. Your credit score is driven by how much revolving credit you have versus how much you are using. Your monthly balances are a factor in your credit score. To help improve your credit score, try to pay down your balances starting with the smallest ones first.
Arbitrary balances are tiny balances that you have spread over several different credit cards. These balances though tiny make a difference to your credit score. Your credit score considers how many balances you have distributed amongst your various credit cards. Therefore, try to consolidate your spending. For example instead of using two separate cards to charge $20 on each card, try using just one card and charge $40 on it. Where your credit report is concerned, variety (of credit cards,) is not the spice of life.
Keep Good Debt on Your Credit Report
So what is good debt you ask? Could debt ever be good? The answer is, of course. Good debt that shows you as a responsible payer on your credit cards. The longer the history of your good paying record, the better it reflects on your credit score.
In the grand scheme of trying to repair your credit score, do not lose sight of the basics. There is nothing that reflects positively on your credit score as paying your bills on time month after month. It doesn’t get more glamorous than that. On-time credit card payments are the bread and butter of your credit score. Keep it simple and continue to pay your bills as you are trying to repair your credit score.
If you have any delinquent accounts that have been sent to collections, try to pay them off. Even though it may not remove these delinquent accounts from your credit report, it may still improve your credit score since a late payment is considered better than an unpaid debt.
Check the Age of Negative Information on Your Credit Reports
If you have any negative information on your credit report, it should be removed after seven years. This is a federal law. If you notice that your credit report has negative information on it that is indeed older than the seven-year limit, follow the steps that you did in the dispute process. That is, contact the credit reporting company and request that they remove this old negative information from your credit report.
Overview of Home Buying Qualifications
When you initiate the home buying process, the mortgage lender will check your application using different qualifications before you are approved for a loan. Here is a list of these home buying qualifications:
When you are trying to qualify for a mortgage loan, your job history will be an important factor. If you have been working for two years at the same employer, you are considered to have steady employment. If you have received promotions or made moves within your job for more pay, this is seen as positive by the mortgage lender. If you have not worked continuously for the past two years, you can explain the reason to the mortgage lender.
The mortgage lender will also consider your bill payment history when considering you for a mortgage loan. More in-depth and more personal than your credit score, this bill payment history will give the mortgage lender an idea of how you will be paying your mortgage payments. The mortgage lender may ask you to list all of your debts and liabilities as well as each monthly payment amount. Moreover, the mortgage lender may ask you to list how many years you have left to pay each of your debts. At this this stage in the qualification process, your mortgage lender may order a credit report as verification for the information that you have personally provided.
The Down Payments and Closing Costs
Another qualification during the home buying process is the amount that you will use to pay for your down payment and closing costs. Different homes at different prices will require down payments. However, a good rule of thumb is that your down payment should equal 5% of your prospective home’s purchase price. Depending on your location, your closing costs could be pricey.
Your mortgage lender will try to ensure that you have saved the money needed for the down payment and most of your closing costs. For example, if you have these funds stored in the bank, your mortgage lender will verify the amount with your bank. Additionally, the mortgage lender will verify how long these funds have been in your bank account. What the mortgage lender is trying to determine here is ensure that you are not borrowing the money needed for your down payment and closing costs.
The amount of your monthly payments will vary depending on how much money you will borrow, the repayment period, and the interest rate. If you have a shorter term, your monthly payments will be higher than if you had a longer term. This is why you will find that most home buyers try to repay their mortgage over a long term such as 30 years.
Your Ability to Make Mortgage Payments
Besides calculating the term of your mortgage payments, the mortgage lender will use two formula to determine if you have the ability to make your mortgage payment.
- Your monthly housing costs should be no more than 20% of your monthly gross income the mortgage lender will consider other income streams such as payment for overtime work, a second job, retirement, Social Security benefits, disability, and VA payments.
- The mortgage lender will also consider your monthly housing costs with other extended debts such as student loans, car loans, or debt payments. These amounts should not equal more than 36% of your monthly gross income. Depending on your income, you may qualify for a financial assistance program. These financial assistance programs may help you get a bigger mortgage loan than you would normally qualify for under the mortgage lenders assessment.
How Your Credit Qualifications Will Come into Play When You are Purchasing a Home
If you’re trying to buy a new home and already meet the 660 credit score benchmark, you will still need to stay on your toes. You need to ensure that you maintain this credit score throughout the entire home buying process. If you have less than stellar credit, do not feel intimidated by this credit card benchmark or by the home buying processes’ emphasis on your credit report. Just so that you are prepared, here ways that your credit score will have an impact during the home buying process:
Your credit score will determine your mortgage interest rate. If you have good credit, you may find a lower interest rate. The converse is also true. With a challenge credit score, you will find higher interest rates if any mortgage loan is offered to you.
With a challenged credit score, you may need to put down a larger down payment when you are trying to buy a home. A large down payment will reduce the amount of your mortgage each month.
Your credit score and credit history will affect the types of loan programs that are offered to you during the home buying process. For example, there are several different types of loan programs available. Some of them are backed by the government. Here is a listing of the most popular mortgage loan programs:
This Federal Housing Administration (FHA) loan program is part of the U.S. Department of Housing and Urban Development (HUD). It has many different mortgage loan products that feature lower down payments and easier qualifications.
These loans are guaranteed by the United States Department of Veteran Affairs. It allows military veterans to obtain mortgage loans with terms that are favorable. Sometimes these loans will not require a down payment. VA loans are easier to qualify for than conventional mortgage loans. The Department of Veterans Affairs will check your qualifications to determine your eligibility for the loan.
These loans are guaranteed by the Rural Housing Service (RHS) of the U.S. Department of Agriculture (USDA). They are primarily for residents in rural areas and feature low closing costs and no down payments.
Local and State Mortgage Loan Programs
Some states and localities have mortgage loan programs that feature low to moderate financing. These loans typically feature down payment assistance and programs that are geared towards the first time homebuyer. The qualifications for this type of loan are not as stringent as that or conventional loan programs.
The terms of conditions of these loans are set forth by Freddie Mac and Fannie Mae. Note that conventional loans could be nonconforming and conforming. Freddie Mac and Fannie Mae establish the maximum loan amounts, income requirements, home buying credits, and down payment amount.
📜 Documents That You Will Need to Provide
When you make an appointment with the mortgage lender, you will need to furnish personal documents. These documents will vary from lender. While your mortgage lender may contact you with the types of documents to bring, be prepared to furnish the following documents when you meet with your mortgage lender:
You will need to bring the Social Security cards for all of the borrowers on the mortgage loan.
You will need to verify the stated income on your application. Plan on bringing paystubs for the past six months
Bring in a listing of all of your home addresses for the past two years.
Checking and Savings Bank Account Statements
You will need to bring in checking and savings account statements for the past three months.
Furnish the address of your local bank branch. This is the one that you visit to make deposits and withdrawals and not the address of the bank’s headquarters.
You will need to bring your federal income tax returns for the previous two years. If you are self-employed, you will need to bring in1099 tax returns and balance sheets.
Proof of Rental and Utility Payments
You need to show a good track record and payment history for your rent and utility payments. Plan to bring canceled checks. If you use a credit card, bring your credit card statement with the listings of the rent and utility bill payments on it.
Proof of Additional Income
If you are receiving payments from a rental property, child support, or Social Security, you will need to provide these records into the mortgage lender.
Divorce Settlement Papers
If this applies to you, and your divorce is finalized, bring in your divorce settlement papers to your meeting with the mortgage lender.
Your mortgage lender will use the preceding documents to gauge your current debt payments with your income. These documents may seem routine and every day to you, but they are valuable tools for mortgage lenders, who used them to make an adequate assessment of how much home you could really afford.
While you don’t have to provide all of the required documents to the mortgage lender before receiving an estimate, it is in your best interest to furnish as many documents as needed so that the mortgage lender can make an educated decision on your behalf. During this stage, the mortgage lender will not charge any fees, except the one needed to obtain your credit report.
Now that you have a general home buying credit overview, you can make informed decisions about how to proceed in this process. The good news is that if you have bad credit, this does not have to spell the end of your home buying dreams. You could work to repair your credit using the preceding tips in this document. Once you obtain your credit report, it will list your credit score, which will truthfully reflect your home buying credit.
If you need to dispute any items on your credit report, you can do so to ensure that your credit score is accurately reflected on the report. As every credit score point matters, it is to your best advantage to dispute any discrepancies on your credit report. With your credit report in hand you should review your home buying qualifications and find out how much home you could really afford. The mortgage lender and your real estate agent will help you in this determination.
which credit score is used when buying a house
The answer is no. A seller doesn't care what your credit score is, only a lender does. If there is no lender, then there is no need for a credit score. If you are buying with cash, then there is no lender. This is a simple logical argument: ergo, you do not need to have a good credit score to purchase property with cash.
A house purchase is really just like buying anything else. You don't need good credit to buy stock with cash, or groceries, or even a car with cash. A home purchase is only complicated when we finance them.
Some of those complications, however, have benefits. In the US, you get a tax credit for the interest you pay on the home, and right now the interest is so low that it is practically free money. Furthermore, you can invest the money in an income producing way, which could have other significant tax benefits as well. But, to take the best advantage of those benefits, you do need a good credit score. So, pluses and minuses.
Perhaps you should speak with a financial advisor before making any final decisions. Look at all the options and then decide on the best one.