All our lives, we’re presented with the goal of buying a house. Having a place of our own to put down roots and build a family. But it feels like financial systems are made to stop us from getting there, and it’s true! There are a lot of steps to being ready to own a home in this world! However, we can make these systems work for us.
For most people, who try buying a house with bad credit feels like the biggest obstacle on the path to home ownership. Understandably so! We aren’t taught about credit well enough, and it seems big and mysterious. Let’s bring it back down to Earth!
Why Does Credit Matter to Home Ownership?
Obviously credit is a big deal in buying a home. It’s important to know why, and what better credit can do for you!
Credit is a bank’s way of judging how reliable you are with money. Bad credit doesn’t make you a bad person, it just makes banks hesitant to lend to you. This means that with a little credit boosting work, you can get bigger loans with lower mortgage rates, often with a lower down payment!
How high does your credit need to be? Great question! We can break down some different common loan types and their credit requirements.
- Conventional: You’ve probably heard most about this type! It’s very ordinary, can be provided by any bank or other lender, and has a minimum credit of 620.
- FHA: This is government-backed, and is made for people with debt and/or lower credit scores. At a score of 500, you could qualify for a loan with a 10% down payment (far lower than most loans would require in this credit range). However, at a score of 580, that minimum down payment drops to only 3.5%!
- USDA/VA: USDA loans are for rural areas, VA loans are for veterans. They have a minimum credit score of 640, but require no down payment!
Of course, individual lenders may have stricter requirements for credit scores, employment, et cetera, so check around with your local banks and credit unions!
There’s so much needed to walk the path to home ownership, but we know the process well. Contact us with any specific questions, or comment below if you’d like us to dive deeper in another blog post!