Many people fail to realize that having a low credit score does not automatically disqualify them from owning a home. Thanks to the Federal Housing Administration, people with low scores and small deposits can own homes.
With prices hovering over $200,000, it’s nearly impossible to buy a home without the backing of a lender. If your finances are in good order, you are eligible for a mortgage plan. Primary Residential Mortgage, Inc. says you can qualify if you can raise the 20 percent down payment.
If your credit score is low and can’t raise the down payment, you stand a better chance of success by visiting an FHA loan company. Unlike the conventional mortgage, the terms on these loans are forgiving and accommodating.
Below average credit score
Without a credit score of at least 700 or more, there’s a high chance you won’t qualify for a regular mortgage. That’s not the case with the Federal Housing Administration loans. With a score of 580, you are eligible for the 3.5 percent down-payment advantage plan, putting you close to your dream of being a homeowner.
However, the basal credit score varies between and among lenders. So, you’re better off checking several companies for comparison. While the loan amount depends on the location and the type of property, it hovers around 115% of the median home prices in your state. There are various online calculators to help you with these calculations, or you could ask your lender.
FHA loans are affordable since they include insurance if you default or contradict the terms of the agreement. The federal government insures such loans, which gives the lenders more room. Since the government offers a guarantee, lenders can be lax on the credit guidelines, underwriting, and require a smaller down payment.
However, this convenience comes at a cost, and you must pay an insurance premium for the entirety of the loan. First off, you pay a one-off insurance premium that equals to 1.75 percent of the loan. Depending on your loan terms, the annual insurance costs range between 0.45 and 1.05 percent.
Qualifying for a conventional loan can prove tricky if your finances are not in good order. However, that should not be the end of your home-owning dreams because you can get an affordable FHA mortgage.