Are you tired of rent cycles? Instead, focus on buying a house rather than keep paying monthly rent. For millions of Americans, bad credit forces them to stick to the monthly rent cycles. But do you know that you can buy a house in Utah with bad credit? A low FICO® credit score should not keep you from buying a home. In this article, we share tips on buying a house with bad credit.
1. Go for low credit score loans.
Homebuyers will be surprised at the range of low credit score home loans available today—most mortgage lenders in Utah issue low credit score mortgages. A good number of these mortgages are government-backed, with credit score starting at 580, while others begin as low as 500. Here is a quick overview of the low credit score mortgages to help buy a house in Utah.
- The FHA home loan: This home mortgage is suitable for borrowers with credit scores from 500 to 620. The mortgage borrowers with a credit score of as low as 500 will be required to make a 10% down payment. Borrowers with a credit score of 580 and above can make a down payment of 3.5%.
- The VA Home loan: Recommended for eligible veterans and service members, the home loan requires a minimum credit score of 580. However, the credit score requirements may vary by mortgage lenders.
- USDA Home Loan: Best for those buying a house in eligible rural areas, the home loan requires a minimum credit score of 640.
Therefore, even with a lower credit score, you have a chance to buy a house in Utah. Check the wide range of mortgage loans available today, or consult a qualified mortgage broker for assistance.
2. Be Willing to Pay a High-Interest Rate
Do you know that banks and mortgage lenders use your credit score to help them calculate your interest rate? Buying a house with a bad credit score could mean a higher interest rate. High credit scores indicate you have handled past credit well, and so you are likely to repay new credit on time. On the other aside, a low credit score is an indication you made some mistakes, or you have not been borrowing, for the mortgage lenders to determine your likelihood of repaying the mortgage.
Therefore, if you have a low credit score, plan to incur a higher interest rate. However, it is crucial noting that a high credit score does not guarantee borrowers the lowest interest rate possible. The mortgage lenders do consider a range of factors when calculating the terms of your loan.
3. Raise a Larger Mortgage Down Payment
If you can develop a larger down payment, the mortgage lenders might be willing to take a chance on you, despite the low credit score. For instance, with a credit score of 500, a high down payment greater than or equal to 10% can get you an FHA home loan.
The logic is that high down payments indicate to the mortgage lender you are willing to take on more home loan risk. The mortgage lender believes you are less likely to walk away from the mortgage when you have already invested more of your own money into home purchase from the beginning.
Therefore, if a homebuyer with a low credit score could raise a 20% downpayment or more on the home purchase, it increases the odds of earning mortgage approval, despite the low credit score.
4. Focus on Rebuilding Your Credit
Some borrowers may not qualify for any of the low credit score mortgage loans. If they are unwilling to pay a high-interest rate or raise a high down payment, rebuilding the credit score could be the only option. However, rebuilding a credit score could take longer than anticipated. Fortunately, rebuilding the credit score is not a complicated process. Here are some options to consider when it comes to rebuilding your credit score.
- Pay all bills on time.
- Pay the credit card debts as much as you can
- Apply for and open new credit accounts only as needed
- Avoid closing unused credit cards.
- Keep checking and dispute erroneous entries to your credit score.
Check your credit score today, and start working on different ways to repair the credit score.
5. Consider Paying in Cash
Not all first-time homebuyers can afford to buy a house in cash. However, if you are blessed to afford the full amount without applying for a mortgage, go for it. Cash buying helps save a considerable amount that could have gone to mortgage interest. Besides, paying in cash makes the home buying process faster and convenient.
Are you dreaming of buying a house but the poor credit is holding you back? Check out the options featured in this article to help you purchase a home with a bad credit score. Talk to an experienced mortgage broker for the best tips on how to qualify for low mortgage loans.