If you find yourself having to move you might be asking yourself, “Should I rent or buy a house?” Of course, both renting and buying usually mean a credit check so you’ll want to know your credit score before submitting an application to a landlord or to a lender for a mortgage loan.
When purchasing a home, a good credit score of at least 760 will get you the best interest rate, as CNBC reports. Anything under 670 is typically considered “subprime” while 579 or less is generally “bad.” If you’re in that category, it’s going to make both renting and buying difficult, but if you’ve got your heart set on purchasing a home, there might still be some options.
Get Credit Report Errors Corrected
The first step to buying a house with bad credit is ensuring that your credit reports from all three bureaus, Experian, Equifax, and Transunion, are accurate. Carefully go through each one to look for any inaccuracies or errors. If you find them, dispute them with the credit bureau reporting the information as soon as possible as it can take up to 30 days to get them removed
Pay Down Debt and Ask For Credit Line Increases
If you have a borderline bad score and have been making your credit card payments on time, try to get credit limit increases by calling the companies you have credit cards with. Most will allow you to make the request without causing a hard pull to your credit that can lower your score. Whatever you do, don’t apply for any type of new credit as too many inquiries will negatively impact your score.
Pay down as much of your debt as possible as it will not only raise your score, but lower your debt-to-income ratio which increases the odds of securing a loan, and one with a decent interest rate.
Make a Larger Down Payment
The larger your down payment, the lower the risk to the lender, so the more you can put down the more likely you are to get approved for a home loan. At least 20 percent is ideal, but the more the better as it shows lenders you’re serious about making a financial commitment to buying the home and will be more likely to make your monthly payments on time.
The Right Type of Loan
Many lenders issue FHA loans and VA loans that are backed by the government, which means you may be able to secure one with a score as low as 580. It might even be possible to get one with a score between 500 and 579, although it is harder to find lenders willing to grant them. If your score is over 600, you’ll have more options such as a low-rate conventional mortgage which requires just 620 or above. Keep in mind that when you put down less than 20 percent, it usually means paying higher interest rates and private mortgage insurance (PMI). In many cases, you’ll still need to put down at least 10 percent if your score is under 580.