If you’re looking to buy a Vero Beach home you probably already know that your credit score is important. But if you have a low credit score, you do still have options.
First, you should figure out what lenders expect of your credit score, since you might be surprised to find that you can indeed buy a Vero Beach home with your credit score where it is.
What Lenders Expect With Your Credit Score
Lending requirements vary from lender to lender, but they’ve generally become more strict since the sub-prime mortgage lending crisis in 2008. As a rule of thumb, though, you’ll need your credit score to be about 650 to get a conventional mortgage –- and that’s on the low end.
Remember, the lower your credit score, the higher your mortgage’s interest rate is likely to be. This can have a dramatic effect on how much you pay for your home over time. So if you’re sitting on the mid-to-low end of the credit spectrum, you may want to look into some of these options, even if you qualify for a conventional mortgage.
Put More Money Down
Mortgage lenders look at a host of factors when deciding whether or not to approve you for a mortgage. One of those factors is your credit score. But another factor is your down payment.
With some lenders, you may be able to offset a weak credit score with a higher down payment. With a bigger down payment, you’ll have more equity in your home, which means the lender takes less of a risk when lending to you.
If you’ve got a substantial amount of money in savings, but your credit score is fairly low, consider applying for a mortgage with a smaller bank or credit union. Many times these smaller entities operate under more flexible lending guidelines, so you can talk to a loan officer about your situation and maybe get a mortgage after all.
Consider Non-Conventional Loans
If your credit score is low (and especially if you combine a low credit score and a small down payment) consider a non-conventional loan. Non-conventional or non-conforming loans, such as the Federal Housing Administration loan, Veterans Affairs loan and U.S. Department of Agriculture loan, often have less stringent lending requirements.
For instance, you may be able to get a FHA loan with a credit score of just 580, as long as you can put 3.5 percent down. With a higher down payment of 10 percent, you may be able to get an FHA loan with even lower credit.
Get Your Credit Score Up
You could just take the time to get your credit score up a little higher. Raising your score isn’t complicated, but it does take time, discipline and hard work. These steps can help get your credit score up so that you can qualify for a mortgage:
- Correct any errors on your credit report, especially late payments or collections accounts that aren’t recorded properly.
- Make all your payments on time. Late payments are the No. 1 way to ding your credit score.
- Pay down revolving debt like credit cards. A high debt-to-credit ratio is another surefire way to lower your credit score.
- Wait it out. As long as you’re paying down debt and making payments on time, your credit score will eventually go up on its own.
Two Final Tips (and these are biggies):
We’ve all seen the deals from furniture, appliance and electronics stores declaring, “Pay no interest for 24 months,” or, “Same as cash” offers. One would naturally think that paying no interest by financing directly through the store makes sense, but DON’T DO IT!
According to most experts including the Federal Trade Commission, this type of financing is generally offered through a finance company, considered to be a “lender of last resort” and as such, can actually hurt your credit score. Finance companies typically deal with sub-prime borrowers and several such purchases can have an increasingly negative impact on your credit score.
Here’s another “gotcha.” When applying for credit, you may be wrongly advised to pay off an old medical collection bill, for example. Paying off a dormant bill can reset the timing counter from an aging derogatory obligation to a current one and could cost you significant points off your credit score simply because there was new activity on the unpaid obligation that had been aging off your credit score.
Even if you decide to apply for a non-conventional loan or put more money down when you buy a Vero Beach home, these are good credit health habits to maintain for a lifetime.
To stay on top of Vero Beach mortgage news and tips, check out our other articles by clicking on the Vero Beach Mortgage Info link to your right under Vero Beach Real Estate Categories.