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I'm currently saving as much as I can so I can buy a home. I should have 20% payment by the end of the year for the kind of home I want. But my credit is bad. I'm waiting for my 3 bureau scores to come in the mail since they can't process it online without paying. I'm not sure if my score is above 600 (I would be surprised if it is). I have an unpaid medical bill, a landlord sued me in civil court and I refused to go, a cable bill that came months after I paid the final bill, etc.
I use to have the best credit until I decided to save and quit using credit cards and paying every leech out there. What kind of loan can I expect with 20% down for mortgage and bad credit?
Loan requirements are relatively strict right now, but not as strict as they were a couple years ago. Still, I don't know any lenders or loan programs in my area that will loan on sub 600 credit. There are probably a few out there, but you will have to search for them, and any program you do find is going to be at a substantially higher interest rate. More of a hard money rate.
However, not all bads are the same when it comes to credit. The medical bill will hardly hurt you at all, but the landlord judgment might be a dealbreaker, on top of the generally bad credit. Lenders want to make sure that you prioritize housing expenses, and if you have a landlord judgment, that shows that you do not, regardless of the circumstances. Most lenders even send paperwork to your current landlord to ensure that payments have been made on time for at least the last 12 months.
Also, the fact that your negative is all recent is a bad thing too. Whether factual or not, it makes it appear that either you've fallen on hard times and can't afford your bills, or else just stopped caring whether people get paid. Lenders don't look on either scenario favorably.
Credit score is only so important. Your rate can depend on your score but there are also programs where as long as you meet the minimum score you can get the same rate. There is the FHA program if your score is that bad - https://www.fha.com/fha_credit_requirements. Looks like they go below 580. In short you likely will end up paying more in rate or fees because of the low score.
For the FHA I think you need 22% down to avoid the 11 years of mortgage insurance (MIP) - https://www.fha.com/fha_requirements_mortgage_insurance . 10 -21.99% down is 11 years and less than 10 is for the life of the loan.
Credit is very important in obtaining a mortgage!! You will need to have all collections on your credit report paid. I would then call a mortgage broker and have them pre-qualify you. That way you know IF you can get approved and if so for how much.
You have time to improve your credit score. You need a credit card that is active. Even if you only use it at Starbucks once a month, get one and use it. Let a small balance carry over (less than $10) each month.
After I got out of credit card debt, I decided to let them pay me. I use a credit card for everything. (Even to pay bills.) I just pay the balance off each Friday. I earn between $50-100 cash back per month. I pay nothing in finance charges.
Credit Score is very important. If you have below a 680 Credit Score, I would recommend looking into an FHA loan. They are less strict than a conventional loan and their rates are very competitive and most times better than the conventional loan with the same score. There are lending limits so you have to know where you want to buy and make sure the house fits within the lending limits for that area. They also only require a 3.5% down payment if you are 580 and above on your credit score. I would find out your mortgage credit scores, the ones you see from credit card companies and stuff is pretty useless for mortgages. I would go talk to a mortgage broker right away and get a game plan in place.
In my market, you can have as low as 3.5% down on an FHA loan if you have a 580. However, you can have a very low 500 score IF you put 10% down. Sounds like you're going to put down 20%, so that would work. You just need to find the lenders that work with lower scores.
And, yes, your interest rate will definitely be higher because of score. Your home owner's insurance is also based on credit tiers, so expect to pay a higher rate there too.
I'm currently saving as much as I can so I can buy a home. I should have 20% payment by the end of the year for the kind of home I want. But my credit is bad. I'm waiting for my 3 bureau scores to come in the mail since they can't process it online without paying. I'm not sure if my score is above 600 (I would be surprised if it is). I have an unpaid medical bill, a landlord sued me in civil court and I refused to go, a cable bill that came months after I paid the final bill, etc.
I use to have the best credit until I decided to save and quit using credit cards and paying every leech out there. What kind of loan can I expect with 20% down for mortgage and bad credit?
Your biggest hurdle might be the Judgment on credit from the Landlord. That will have to be paid in full and released prior to buying.
Leave the Medical bill alone. Get a secured credit card, likely $300, use it sparingly, never let the balance exceed $100, and pay it in full every month.
Paying the judgment might sting, but you will likely be in the upper 600s if you do what I am telling you, and you will have some good options when it comes time to buy.
You should put in the detail of amounts owed to whom and the dates. The higher interest rate on your mortgage might mean it's better to pay them off. Or at least some.
I'm surprised that you can get a mortgage with those on there at all. But if you can, the interest rate might not be worth the 'savings' of not paying those debts.
re-fi is expensive if you were thinking you'd do that later after these fall off.
Hi,
A credit score plays a great role to get a mortgage.Borrowers with good credit scores generally qualify for mortgages with favorable terms, while those with lower scores usually face higher rates of interest.
Thanks!!
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