One of the challenges to purchasing a home is your credit score. Everyone knows in order to obtain the best financing available you need to have good credit or even better great credit. But for everybody else, if you’re quiet is questionable or middle of the road this information is for you…
Traditionally, to get a mortgage loan you need to have at least a minimum credit score for a conventional loan of 620 FHA believe it or not will actually go down as low as 580 with most banks and lenders, not all will look at it this way, but there are several big players in the market that will do FHA loans down to a 580 credit score.
Your file must pass automated underwriting this means that even if your credit score needs a little bit of love it still has to pass automated underwriting meaning that if your file does not pass automated underwriting more than likely you’re not getting financing. This means you have to have an ample down payment, cash to close, a sufficient debt to income ratio, a good job good income, and enough good in your files to offset the negative such as the credit score.
So should you buy a house with a credit score you have or wait? Well, how much is the new house payment with everything included principal interest taxes and insurance in relation to your rent payment? How much more does your credit score have to go up by in order to reduce the payment by a certain dollar amount?
For example, 80 points increasing your credit score is a very tall order to go from FHA to conventional which can only usually happen with paying off debt and time, meaning the timely payment of obligations. Trong to get clever or figuring out a way to manipulate your credit score by 80 points is probably a recipe for a failure. Need to pay down debt? A 20-30 points increase by paying off debt is manageable but if you’re talking about anything over 50 points in credit score you’re talking about extraordinarily large feet.
When you buy a house your credit score automatically goes up anyway just by doing nothing else with your credit probably to the tune of about 20 to 30 points in most circumstances not all but, most. So you have almost half the equation with your credit score already fixed just by buying a house anyway with a payment that you can afford, then sprinkle in 6 months of time for example it’s likely that you might be able to refinance into a conventional loan 6 to 8 months out at the soonest while letting market forces do its thing. In most markets throughout the country right now housing prices are stable to rising. So if the prospect of buying a house means you can get an affordable payment and put yourself in a position where you can better your mortgage but you can still afford it at the end of the day, buy a house today.
If however, the payment is astronomically high in relation to your income you should pump the brakes on buying a house, and work on your credit and paying off debt or seeing if you can put down a larger down payment because the other way to offset a payment that you don’t like is extra cash maybe you can tap your 401k or ask mom and dad or your brother or sister or a family member for gift money? $50k of down payment translates to about $35000 a month $400 a month of payment which for can go a long way for a lot of families especially what comes time to buying a house and getting serious about a monthly budget.
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