So you want to buy a house? You know you have to save up the money for a house to have a down payment.
Are you aware that your credit score matters? There are a dozen things you should know before buying a house.
Stable Job and Income
The first thing you need is a good and stable job. You should have been on this job for at least three to five years. Your paycheck pays off:
- Credit Cards
- Auto Loans
- Gives you an income to debt ratio
That’s vital to your credit report.
Good Credit Score
Next, you’ll need a good credit score. This varies, depending on which lender uses credit reporting companies such as:
Since credit plays so huge a part in your efforts to buy house in Orlando FL let’s examine it.
The third thing you’ll need is a down payment. There are many facets to down payments, and we’ll go over all of them. If you can’t save it on your own, don’t despair – there’s an answer for you.
The Part Credit Plays In Home Buying
Your credit score is used not only in buying a home, but in buying cars, renting an apartment, getting the power turned on in the apartment, landing a job, and dozens of other things. With that said, it makes sense to work on having a good credit score.
How Lenders Look At Credit Scores
How you use credit is reflected in your credit score. If you’ve paid your credit card payments and loans on time, then you’ll have a good credit score. If not, then your credit score will reflect it.
Let’s say you do an Orlando property search to find the house of your dreams. You’re lucky enough to find it, so you apply for a mortgage. The lender or mortgage lender looks at your credit score.
If he sees 700 to 800, you’re in. If the number is between 600 and 699, you’re in, but could pay extra in interest.
For numbers below 600, loans aren’t impossible, but you’ll pay much more in interest than someone with A credit.
While credit scores dip into the 600s, it depends on where in the 600s you are to a lender. A credit score of 680 isn’t bad, but when it dips beneath 660, then get prepared to pay more for that Orlando Florida real estate you want.
Some lenders will even work with potential home buyers with a 620 to 640 credit score.
Credit Scores In The 500s
Working toward buying a home with credit scores in the 500s isn’t impossible. This is called a bad credit home loan or, as some call it, a subprime loan.
Expect to pay the limit in interest. Also expect to pay mortgage insurance. Lenders ask for this in case those with very low credit scores default on the loan.
Working toward buying a home with credit scores in the 500s isn’t impossible. This is called a bad credit home loan or, as some call it, a subprime loan. Expect to pay the limit in interest.
Also expect to pay mortgage insurance. Lenders ask for this in case those with very low credit scores default on the loan.
How Credit Affects Mortgage Rates
Your credit score impacts how much you’ll pay in interest on a loan when you’re buying a new house. Begin working on getting your credit score higher at the very least one to two years before you seriously begin to buy a house. Lenders will see the work you’ve done and possibly be more apt to loan you the money.
Down Payments On A House
A down payment is a cash payment made in good faith that you will repay money loaned to buy the home. This payment lowers the amount you’ll borrow to pay for the house.
It’s usually 20 percent, but lenders vary on the amount of the down payment. A down payment usually runs $10,000 and up.
Many people struggle to pay the rent, car payments, insurance, medical bills, and credit card debt. It’s often difficult to save the money for a down payment on Orlando realty. These potential home buyers often need help making the down payment.
FHA Down Payment Assistance
If potential home buyers have very little to no money for a down payment along with low to very low credit scores, all is not lost. While traditional lenders want a 20 percent down payment, FHA lenders only ask for 3.5 percent. In some instances, no down payment is required.
First-time buyers with a credit score of 580 can get a loan with only 3.5 percent down payment. Buyers with 500 to 579 credit scores will need to pay ten percent down. Keep in mind that any loan less than 20 percent carries mortgage insurance. This includes FHA loans.
Some of the benefits of FHA loans include:
- Low Down Payments
- Lower Mortgage Insurance Rates
- Better Underwriting Limitations
What kind of FHA loans are available?
Fixed rate. This is for the buyer who will own the home for life. He will be paying either a 15 year loan or a 30 year loan. The interest rate will remain the same for the life of the loan.
Adjustable rate. For the homeowner who will be moving somewhere down the line, the adjustable rate loan is revamped along the line considering the terms of the loan.
Secure refinance loan. If the home buyer is suffering under incredible interest payments, then he can refinance his loan into a fixed rate loan supported by the government.
203K loan. This loan is for the home buyer who needs financing as well as money for a renovation. Usually this loan goes towards a foreclosed property that is HUD approved. You’ll need to qualify for this program.
Section 245(a) loan. This loan is for the home buyer whose income will increase in the years to come. Payments will begin with what you can afford now, and go up with each increase in income.
Your credit score affects everything. These days people need to know if you’re capable of paying for something. Lending institutions are no less concerned with your credit score.
While you’re paying down your debt, though, there are institutions like FHA with programs to help first-time buyers buy a house. Check into it today.