FHA loans are for low-credit borrowers, and there is no doubt about it. But have you started the preparation? Read more!
Is it possible to qualify for a loan with 580 credit scores? If you are only starting out in the housing market, you ought to know about bad credit. A fair credit score starts from 620, but anything below this is considered to be bad credit. While your friends might have suggested bad credit does not lead to successful loan applications, this article might help you.
The Federal Housing Administration insures loans for borrowers whose credit scores are as low as 500. Many lenders might follow the primary and secondary credit score requirements. They might now allow 500 credit scores because the risk is higher. Again, many lenders would not work with a borrower whose credit score goes below 620. Buying a house with 580 credit score in Houston is certainly pretty easy. If you prepare just the right way, things can’t get any better.
So, the article further deals with how you can qualify for an FHA loan. Let's take a look below.
Clear the Existing Debts
One of the major qualifying factors is to have a spotless financial profile. Now, it is not possible for every borrower. But you have to make sure you can pay down the monthly expenses. Before taxes, your monthly mortgage expenses should not exceed 35% of the income. In addition to it, monthly mortgage payments along with other monthly debts cannot go over 48% of the income. It is a smart option to utilize a home loan calculator and check how much you can afford. When you are not able to meet the ratios, you should pay off the current debts.
Get Started with Credit
Even if you have 580 credit, it does not put you in a favorable situation. FHA lenders might set the minimum credit benchmark as 500, but they expect more. Low credit scores lead to higher risks. Many lenders often require 640 or more for the FHA loan programs. All they want is to minimize the risk of having a default on the loan. 6 out of 10 Americans do not know their credit scores. So, you should get a free credit report. Try to pull your credit score above 640. If there is not much time, talk to a lender about this situation.
Find a Bad Credit Lender for FHA Loans
The Federal Housing Administration has their set of guidelines. Nevertheless, lenders bend the guidelines to lessen the risk factor. They have the permission to overlay their limitations which might put a hold on your FHA loan. Many lenders prefer borrowers who have excellent credit scores. However, local lenders can help a borrower with credit scores as low as 580.
Buying a house with 580 credit scores can be a cakewalk when you are ready to follow the necessary tips. Of course, solve your queries with the help of your chosen lender. Gather information about the program before submitting the loan application. Prepare yourself first. Research and negotiate the terms with the FHA lenders.