As many are aware, low down payment mortgages are getting more difficult to get. FHA is still available for those with credit scores as low as 580, possibly down to a 540 (although they are difficult to get approved). Conventional loans with 3% down are still possible, but you need a 680 credit score to get mortgage insurance. Starting in October many mortgage insurance companies are going to require a 700 or 720 credit score to get mortgage insurance on any mortgage over 95%. If you are a first time homebuyer, it is still possible to get a mortgage with 3% down and a 620 score through MHFA mortgages. If you are buying outside the metro areas, you may be able to qualify for a rural develoment loan with zero down and a 620 credit score. VA loans are wonderful for those that qualify and you only need a 620 score – sometimes lower.
This means that your credit report is more important than ever before. When you start thinking about buying a home, you need to meet with a loan officer and go over your credit report. If you think that your score is below a 700, it helps to start with someone that can tell you where you need to improve. You need to make sure your mortgage, car payments, student loan payments and credit cards are all paid on time. If you have credit card debt that is maxed out – or over 50% of the available credit, paying it down will help your credit score. Many believe that your credit card debt should not be over 30% of the available credit. Do not close credit cards, that will lower your available credit and lower your credit score. Paying off old collections can actually lower your credit score as it will reflect them as recent transactions.
Make sure you take the time to look over your credit report at least once a year. You can get a free copy once a year from all 3 credit bureaus through www.annualcreditreport.com. If you are trying to fix your credit report, I sometimes tell people to pull one bureau. Check that report to see if things have been fixed and if not, follow up with the credit bureau. Then a month or so later, pull another bureau (either equifax, transunion or experian) and see if the corrections have been made. If you use this service, it does not count as an inquiry against you. If you are paying off a collection, get a receipt, ask the collector to fix your credit report and also take the time to send a copy of the receipt to the credit bureau and tell them the bill is paid in full.
It is still a wonderful time to buy a home, but it does help to be prepared. Interest rates are great, homes are at low prices and there are still many programs available!!
