Haunted by a less-than-perfect credit score, but playing with the idea of owning? Millions of Americans believe that bad credit automatically disqualifies them from homeownership. While a stellar credit score certainly makes the process smoother, it doesn’t have to be a roadblock Homeownership is attainable, and we will work with you to help you achieve it. It’s a marathon, not a sprint.

What Is Credit Score?

A credit score is a numerical representation of your creditworthiness, essentially serving as a snapshot of how likely you are to repay a loan. It is a crucial factor in determining the risk involved in lending money. Several factors contribute, including payment history, credit accounts, and applications for new credit.

The Credit Clean Up

Before you even think about house hunting, it may be worth evaluating your credit score and considering how to improve it, if need be. A higher score can unlock better interest rates and loan terms, saving you a significant amount of money in the long run.

The first step is understanding where you stand. It may be worth obtaining your credit reports and carefully reviewing them for inaccuracies, such as incorrect account information, late payments mistakenly reported, or even accounts that aren’t yours. Make sure to dispute any errors directly with the credit bureaus.

Adhere to the golden rule of credit – pay your bills on time, every time. Payment history is the most significant factor in your credit score. If you want to confidently avoid missed deadlines or struggle to remember when to pay, set up automatic payments. It is also smart to consider lowering your credit utilization ratio. This refers to the amount of credit you’re using compared to your total available credit. It is generally considered best to aim to keep your credit utilization below 30%.

Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes towards debt payments. Lowering your DTI can make you a more attractive borrower. Pay off high-interest debt, such as credit card debt, to improve your DTI.

Another element to think about is not closing old credit accounts unless absolutely necessary. Older credit accounts demonstrate a longer credit history, which is beneficial for your score. To take advantage of that benefit, it may be wise to close accounts only if you’re struggling to manage them. On the other hand, it might not be wise to open any more lines of credit.

Remember, building good credit takes time. Don’t expect to see dramatic results overnight. Consistency and discipline are crucial.

Options and Strategies

If you need a little help or motivation, the Silverton Homeownership and Finance Center offers ongoing financial education aimed at improving financial wellness. It provides education, support, and resources to guide families on their pathway to financial independence and homeownership with on-campus and online classes that can guide you towards better credit.

One option to consider is government-backed loans. These can include FHA, VA, and USDA* loans. FHA loans are insured by the Federal Housing Administration and offer lower down payment requirements and more lenient credit score requirements than conventional loans. You may be able to qualify with a lower credit score.  The Department of Veterans Affairs guarantees VA loans that are available to eligible veterans, active-duty service members, and surviving spouses. They often require no down payment and have relaxed credit requirements. USDA loans are designed for homebuyers in rural and suburban areas. They offer low-interest rates and often require no down payment.

Another option might be to offer a larger down payment. A higher down payment can offset the risk associated with a lower credit score and increase your chances of approval. Aim for 20%, if possible, but even a larger down payment than the minimum required can help.

Before you start house hunting, it will benefit you to get pre-approved for a mortgage. Providing you a clear understanding of how much you can afford and what terms you’re eligible for. If you are having trouble getting pre-approved, it may be worth considering having a friend or family member with good credit and a stable income co-sign your mortgage. This reduces the risk and can improve your chances of approval. However, make sure the co-signer understands their responsibilities and potential liabilities.

Buying a house with lower credit comes with its own challenges, but it’s not impossible. By focusing on repairing your credit, exploring alternative loan options, and being prepared to make certain sacrifices, homeownership can be attainable! Remember to be patient and persistent, and if you have any questions about what options are currently available to you, reach out to one of Silverton Mortgage’s Mortgage Loan Originators or take a look at our available loan programs. Your journey from credit crisis to keys in hand is within reach!

*The material and information contained herein is for general information purposes only. Silverton is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Silverton does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating.