Before lenders even consider your application for a conventional loan, you’ll require a FICO score of 620 minimum and about 12 months of timely payments on your bills. In addition, your debt-to-income or DTI ratio shouldn’t be over 43% of your gross income per month. If you don’t meet these standard requirements, what then?
AmericanLoans.com says to consider the following options.
FHA Loans and Rent to Own
The FHA or Federal Housing Administration is part of HUD, the United States Department of Housing and Urban Development. They aid individuals in purchasing a house without necessarily satisfying the strict standards of conventional home loans. Since plenty of homebuyers don’t have the financial capacity to pay the usually high, upfront mortgage costs, FHA loans usually come with reduced down payments — 3.5% at least — lower credit requirements, as well as closing costs. However, note that FHA only guarantees or backs the loan. This means that you have to go to FHA partner banks, lenders, and agencies to apply for an FHA loan.
With the rent to own or lease to own option, a portion of your monthly rent payment goes straight to purchasing the home, with the rest being the actual rent payment. This will give you ample time to save up for a down payment, fix your credit rating, and try out the house prior to purchasing it. This setup usually lasts between two and five years, and you can walk away under specific conditions.
While you didn’t plan it, life events can sometimes result in your credit rating to plummet. If you’re lucky enough to be qualified for a low credit home loan, a mortgage specialist in Utah says that you’ll have to research and weigh your options well to see which one works best for your financial situation. Otherwise, you can rent until such time that you can fix your financial circumstances. So prior to trying to apply for a home loan, save some money for a down payment and try to repair your credit rating.