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Credit Scores
By JOE CAMACHO 651 views

Credit Scores and Home Loans: What You Need to Know

If you’re looking to buy a new home, chances are, you’re going to need a loan. However, since the mortgage crisis of 2008, lenders are more strict about to whom they lend money. Your credit score determines the likelihood of getting that loan, and if it needs work, there are things you can do in the short term to fix it. Which is why you should always be on your toes to improve credit score.

Why Good Credit is Important

Having a good credit score not only enables you to get a loan but can also help you get a loan with better terms than if you have less than good credit. Having the best possible score can save you thousands in interest and fees. While there are mortgages available to people with less than perfect credit, buyers rarely benefit in the long term with these loans.

What Type of Loans are Available?

The traditional home loan is a term of 30 years. Fixed rate mortgages mean your interest rate remains the same for the life of the loan. Adjustable rate mortgages feature a floating interest rate; however, these have fallen out of favor since the 2008 crisis.

FHA Loans

If you have poor credit, you may get an FHA loan. These loans are available to people with a minimum of 500 credit rating, and the Federal Housing Administration insures this loan. The downside of these loans is that, because they’re higher risk, the buyer usually has to put down a higher down payment or be saddled with a ridiculous interest rate. These loans are ideal for first time home buyers and those who don’t have a solid credit history established.

VA Loans

If you’re a veteran, the VA Loan is an option. This loan is guaranteed by the U.S. Department of Veterans Affairs and is available for active duty military, reservists, and veterans. What’s nice about these loans is that the buyer can finance 100% of the loan with no down payment needed. Also, VA loans don’t consider credit scores. The VA guarantees 25% up to $113,275, and any qualifying veteran can get this loan.

USDA Home Loan

The U.S. Department of Agriculture backs the USDA home loan, which is available to people in both rural and suburban areas. The purpose of this loan is to help people get low-interest loans with a low down payment. These federally backed loans are designed to keep the housing market accessible to buyers of all income levels. Even though the government backs these loans, it’s still wise to keep track of your credit score and work to improve it.

How to Improve Credit

Before you go for a home loan, get a copy of your credit report; it’s free. Study it and see where it needs improving. Also, check for mistakes and inaccuracies that are dragging your score down. Focus on paying your bills on time and maintaining a low credit to debt ratio as these are the two most important factors that determine your credit score. Even with a history of past-due payments, paying bills on time from now on goes a long way to improving or fix your credit score.

Joe Camacho

With my 12 plus years of experience, in Consumer Services, Credit Education, & Credit Restoration, I know that I will be able to assist you in improving your credit rating by providing solutions. Combining my experience, with that of our staff attorneys, will allow my clients to have the peace of mind of knowing that they will be receiving unmatched services. Services at The Phenix Group include removing inaccurate items from credit reports, consumer services, and when necessary, assisting with establishing new lines of credit.