Do you want to get a home loan with 580 credit score? Then, you should avoid these mistakes.
Do you want to buy a house with a home loan? Before you opt for a home loan program to buy your dream house, you have to make sure that you have a good credit score. It is because the credit score is one of the most vital things that mortgage lenders check before approving your loan. And your loan can be rejected if you have a bad credit score.
However, that does not mean you will not able to fulfill your dream of homeownership with a low credit score. There are several lenders who can help you with the process of buying a house with 580 credit score. But to get the loan approved, you need to make sure that you don’t make any mistakes. Here, we have put together a few mistakes that you should avoid when opting for a home loan with 580 credit score.
Taking other loans
When you take out other loans, such as personal, auto or other loans, there is one thing in common. They increase your total debt load. And as a result, they can affect your chances of getting a home loan with 580 credit score. When you apply for a home loan with a low credit score, the lender will check the amount of debt that you currently have. They will compare your monthly debts to your gross monthly income, which is known as debt-to-income ratio, or DTI. It is one of the most crucial qualification requirements for borrowers in the current borrowing environment. So, if you are planning to apply for a home loan, avoid taking out other loans.
Racking up credit card debt
You know how your DTI ratio affects the mortgage loan. Credit card balances are added in this calculation as well. Carrying too much credit card debt is one of the main reasons behind a mortgage rejection nowadays. It creates the impression that you may not be able to pay the loan amount in the eyes of lenders. To lower such possibility, you should limit your credit card use before applying for a home loan with 580 credit score. Racking up the additional debt by using those cards will simply drive up your DTI ratio. Moreover, by increasing your “credit utilization ratio”, it can lower your credit score. So, you should try to clear as much debt as possible before applying for the loan.
Blowing your savings
When you will use a mortgage loan to buy a house, you will experience some out-of-pocket costs. And one of the most important of them is the down payment for the loan. The down payment might be 3.5 percent for an FHA loan or 5 to 10 percent for conventional financing, but it may differ from a lender to another one. You will also have to pay the closing cost and this can amount to thousands of dollars and above and beyond the down payment. Some lenders may want to see additional cash reserves in the bank, especially if your credit score is 580 or lower than that. In order to improve your chances of getting the home loan, you should try to save as much money as possible. Before applying for a home loan, you should avoid large purchases that can deplete your savings. Don’t think about other purchases until you have secured a home loan.
So, make sure that you should not make these mistakes when applying for a home loan with 580 credit score.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.