Purchasing a house is a huge investment, and you absolutely need a home loan to get through. As a first-time homebuyer, credit scores become a tipping point. Many borrowers fail through the mortgage process because they do not have sufficient credit scores.
Buying home loans for low credit scores in Houston, TX can be achieved, but many things are at stake then. You might not get an affordable loan term or interest rate because of the credit scores. So, here we have mentioned the necessary things you should keep in mind before getting a home loan for low FICO scores.
Credit Score Influences Interest Rates
If you can work with a large down payment, your interest rate will go down. This step eliminates private mortgage insurance. So, you must be wondering about the interest rate amount. If you take out a 30-year fixed-rate mortgage amounting to $216,000, you might have to pay $1,1258 annually. The calculation is done considering the 5.73% interest rate on the home loan. Now, if your credit score is between 620 and 639, the interest is thought to be around 5.73%. If your credit score were between 760 and 850, the interest rate could be around 4.14%. Needless to say, you would have to pay $1,049 annually. Can you imagine how much there is to save if you have an excellent good credit score?
Prepare for a Large Down Payment
Even though your credit score fails, a large down payment can help a lot. Mortgage lenders instantly prefer borrowers ready to make a large down payment. For example, a 20% or higher down payment keeps down the loan-to-value ratio. In this way, you can land any home loan option you want. If you divide the loan amount by the purchase amount, you get the loan-to-value ratio. Low credit score loans like FHA programs might lure you – a down payment as small as 3.5% may be a relief for many. Before you get too excited, keep private mortgage insurance in mind. This is the upfront cost that rolls with the closing costs. A large down payment gets rid of private mortgage insurance.
Pay Attention to Mistakes
When you get your hands on the report, do not think it will be 100% accurate. Look closely and find out whether there are negative entries on the credit. You should look out for several things,
- The information does not relate to your name
- Debt that you have already paid
- Misinformation or out-of-date entries
- Identity theft
- Entries on closed accounts
The thumb rule for making sure things are alright is that you should check the report every 6 months. When there are errors, you should talk to the credit agency. Monitoring your credit report keeps you out of the risk of losing FICO scores.
If you follow these tips, there is a great chance to land an affordable mortgage rate and term. Work with your lender and find out how you can improve the chances. Of course, keep these tips in mind meanwhile.