Dec
13

How important is your credit score when attempting to purchase a house?

Purchase house
by wallyg

Question: How important is your credit score when attempting to purchase a house?
I want to purchase a home with the lowest down payment required. My credit score however isn’t that great. My finances have now bounced back and I have been paying-off collections, ect.    My credit score is kinda low due to my past. Step by step, what should I do?

Best answer:

With tarnished credit your best choice would be an FHA loan. FHA requires a 3.5% of the sales price as down payment. FHA still does not require a minimum credit score. But individual lenders Do!Most are sticking with 580+. Some are going as low as 500, but require a higher down payment.  Assuming that you have not had a foreclosure or bankruptcy within-in the past 2.5 years. To get started Pay-off any judgments and/or collection. Try to pay down some lines of credit (Credit Cards). Do not confuse paying down or paying-off with closing the account. One factor that determines your credit score is the number of lines of credit you have and how long they have been open. Bring any ongoing monthly expenses (Insurance, utilities, etc.) current. Taking those steps should bring your credit score up. 

In the State of Virginia there is a program called the VHDA/FHA Plus that is designed for first-time home buyers or for people who have not owned a home for at least 3 years.                           The qualifying ratios are a little tighter than regular FHA but you can buy with No Money Down.

Your credit score needs to be at least 620+. No recent late-payments, judgments and/or collection. If you have some old judgments and/or collections pay them off!

This program is a collaborative effort between VHDA (Virginia Housing and Development Authority) & FHA (Federal Housing Administration). The 1st trust is an FHA loan for 96.5% of the sales price and the 2nd trust is a loan for 3.5% of the sales price. Unlike the no money down Arm’s of years past. These are fixed rate loans that have interest rates that are competitive with ordinary FHA loans  that require 3.5% in downpayment.  

National Association of Realtors

 

Know better? Leave your own answer in the comments!

About Kristofer Nance

Kristofer Nance, Real Estate Broker with Nance & Associates, Realtors in Fredericksburg VA
Owner/Agent of Nance & Associates, Insurance.

Comments

  1. spadezgurl22 says:

    credit has a HUGE influence on what types of rates and how mucha bank will lend you.if u have bad credit chances are u wont get a good rate or even get lent to. credit scores determine how you pay back your last lenders. better improve your credit before u apply for a motrgage.

  2. Your interest rate may be higher since a low credit score means that you are a higher risk to a lender. Usually, if you have less that 20% of the downpayment of the loan you will also have to carry PMI (private mortgage insurance) through your lender to cover the cost should you default on the loan.

    Go to the website for the Federal Housing Association, and you might also check out the Fannie Mae Foundation. They have step by step instructions on what you need to do. Hope this helps!

    http://www.fha.gov/buyer/process.cfm

    http://www.fanniemaefoundation.org/

  3. fast_on_fear says:

    Extremely important. If you have not yet started the process of buying a home, I would check your credit report for errors and try to pay off credit card and other consumer debt before applying for a mortgage. You will have the opportunity to put a smaller down payment down and your mortgage interest rate will be lower. From the time you start to clean up your credit, it usually takes at least three months to show up on your credit report. If you have the luxury of proper planning, this is the way to go. It could save you thousands of dollars in the long run. I bought a house in January, and because of my wife’s average credit rating, I helped her clean it up before we applied for the mortgage. We were “committed” before we looked around for a home, which gave us credibility as a serious buyer when we were looking around for homes. We also found that a “commitment” from a bank is almost as good as a blank check. You have more leverage when negotiating with sellers and can get a deal on the home of your dreams.

  4. Before you consider buying a house, you should get your financial house in order. The only thing that will help your credit rating is paying your bills on time, over time.

    Nearly everyone can get a mortgage – the only catch is the interest rate that you will be paying. The higher your credit score, the better deal you will get with your mortgage.

    I don’t know how bad your credit is, but you could go to a mortgage broker (not a bank), who will have access to lots of different mortgage options. The broker could show you what kind of interest you would get. By the way, a broker will do this free of charge. If they want to charge you just for showing you different mortgage options – go to another broker.

    If you’re really itching to get into a house now, you can always get a mortgage and then re-finance in 2 or 3 years, hopefully at a lower rate.

    But I would defer the final answer of what’s best for your own situation to your mortgage broker and your realtor.

    Good luck!

  5. Your credit score is one fact of about 4 or 5 that effect your approval chances and interest rate. Normally, if you dont have a great downpayment your credit score is going to be more important..so in your case I would say it will be fairly important.

    The factors that can still help you are having good income, and having low debt.

  6. Millionster.com says:

    Your credit score is important only so far as getting a good interest rate on your mortgage. Lenders look at a lot of different factors but your spending and payment habits are crucial here. Sounds like you’ll want to spend a few months to try to boost your score, which you should so you can get cheaper rates and save thousands more dollars. A few points can make a big difference in how you much you pay. Also i would recommend trying a credit score tracker** to notify you whenever changes happen on your credit report. I’m using one now, and its been great. Anyway check out the links below from my blog, they’ll help you figure out where you stand and how to get the best rate for the home you want to buy! ^_^ Good luck!!!

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