Having a low credit score may be challenging, and in the past may have meant that homeownership was off the table. Fortunately, this is no longer true. There are loans available for people with low or bad credit, and we'll tell you all about it.
Related: Recast a Mortgage: A Complete Guide
What is a credit score?
Your credit score is based on your debt-management history. It's a summary of how you have handled your credit and paid your bills. The higher the score, the better. The specific things that factor into your FICO score:- Your payment history: If you have delinquent accounts or late and missed payments, these can harm your credit score. This is a significant factor in your credit score, accounting for 35% of it.
- Public information: If you have bankruptcies or public records show up on your credit report, they will negatively impact your score.
- Length of credit history: If you've only just begun your credit journey, you may have a low credit score.
- Applications: If you apply for a loan or credit card, this is considered a hard inquiry. When a lender attempts to learn your credit score and possibly your credit report, this triggers a hard inquiry, which will negatively impact your credit score. Thankfully, the effect is only short-term. Periodically checking your own credit is only a soft inquiry and has no impact on your credit score.
- Your credit usage rate: This is the amount of available credit you are using. You figure this out by totaling the balances from your credit cards, then divide that number by your total credit limit. For instance, if you owe $4,000 on your credit cards and your total credit limit is $10,000, you are using 40% of your credit. The golden rule is to keep your usage under 30% of your available credit.
- Your total debt and credit: This concerns the total amount of outstanding debt and the kinds of credit you use. It's good to have various types of credit - revolving credit (credit cards) and installment loans (car notes or loans with fixed payments).
Why it matters
Credit scores typically range from 300 to 850, with the best credit at the higher end of the spectrum. While those looking to purchase homes don't need to have a perfect score of 850, they also shouldn't be at the low end. The best interest rates and deals are offered to those with scores of 760 or above. But if you have a credit score of at least 580, there are options for you.FHA Loans
To qualify for an FHA home loan, potential homeowners must have a minimum FICO score of 580. This score also entitles borrowers to the low down payment benefit of only 3.5%. If your score is below 580, you aren't out of luck. You may still qualify for an FHA loan but have to pay a slightly higher down payment of 10%. We help our clients to get low rates and the best mortgage deals possible. Are you looking for a mortgage broker? Call Mares Mortgage today!Benefits of an FHA loan
The FHA's home loans are insured by them so that lenders can be more relaxed in their requirements. FHA home loans have many benefits for borrowers, including the following:- FHA home loans have more competitive interest rates. These are intended to help borrowers afford their mortgage payments and prevent foreclosures.
- It's easier to qualify for these loans, as they're made available to people who can't meet traditional loan requirements.
- Bankruptcies and foreclosures don't disqualify you from obtaining an FHA loan. As long as you're able to meet other FHA requirements, you can still qualify.
- The benefit of lower interest rates extends to lower mortgage insurance premiums, closing costs, and other fees.
- If you have a brief credit history, you may qualify through another form.
![Signature on document](http://dstoev.2create.studio/projects/blake_driver/mares-mortgage/wordpress/wp-content/uploads/2020/11/signature-on-document-300x200.jpg)