HEAVENLY Why You Don’t Need An Angelic Credit Score To Get A Loan Today
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You can get a Wilmington NC mortgage loan today even if your past financial habits have been more devilish than angelic.Here’s a look at the steps you can take this year to boost your odds to qualify for a home loan, even if your three-digit credit score isn’t as sky-high as you’d like.
Boost your income, cut your debts: The most important guideline associated with the new Qualified Mortgage (QM) rule might be the one relating to your monthly income and debts. According to the QM rules, a mortgage can only be considered a qualified one if borrowers’ total monthly debts—including their estimated new mortgage payment—equal no more than 43% of their gross monthly income.
So if you want to convince lenders that you’re a good risk, work to improve your debt-to-income ratio. You can do this by either boosting your monthly income or eliminating some of your monthly debts. The lower this ratio is, the more attractive you’ll look to mortgage lenders, even if your credit score isn’t perfect.
Consider An FHA Loan: A mortgage loan insured by the Federal Housing Administration (FHA) does come with some extra costs. But it also comes with some big benefits for credit-challenged consumers. You can qualify for an FHA loan even if your FICO credit score is as low as 500. Of course, a higher score is better. If your score is at least 580, you can take out an FHA loan with a required down payment of just 3.5% of your home’s final purchase price. If your credit score is under 580 but at least 500, you can still qualify for an FHA loan, but you’ll need a down payment of at least 10% of your home’s purchase price.
Your credit score makes a big difference in how much down payment is required. Consider a home that costs $150,000. A down payment of 10% will cost you $15,000. One of just 3.5%, though, will cost you a much more affordable $5,250.
Be Willing To Pay More In Interest: Mortgage lenders generally reserve their lowest interest rates for those borrowers whose FICO credit scores are 740 or higher. If your score is lower, though, this doesn’t mean you won’t qualify for a mortgage loan, but you will have to pay a higher interest rate. If your score is 740, for example, you might qualify for an interest rate of 4.25% on a 30-year fixed-rate mortgage loan of $200,000. But if your FICO score is just 640, you might have to take an interest rate of 5.5%—or higher—on the same loan. A higher interest rate will mean a higher monthly mortgage payment.
If your interest rate on that 30-year fixed-rate loan of $200,000 is 4.25%, you’ll pay about $983 each month in interest and principal. (This doesn’t include any money you’ll pay each month for property taxes and homeowners insurance.) If your interest rate on the same loan stood at 5.5%, your monthly payment—minus insurance and taxes—would be about $1,135.
Boost That Score: If your score is too low, of course, you will struggle to qualify for a home loan. But you can take steps to boost that score. Pay all your bills on time. Reduce your credit-card debt. If you gradually build a solid credit history, your score will rise. Just be patient. Boosting a credit score isn’t complicated, but it does take time. Expect to spend at least nine months to move your weak credit score high enough so that you’ll look like an angel to mortgage lenders.
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