Home Buying with Less than Ideal Credit

Buying a house can seem challenging, and for anyone with poor credit, it may seem impossible. Knowing what impacts your credit score and ways to improve it can help you on your journey to homeownership.

Good credit vs bad credit

What is a credit score and how is it determined? A credit score represents the likelihood of an individual to pay a loan on time. The higher the score, the more reliable the individual is considered in debt repayment. A low score indicates that the individual may not pay loans on time or may skip payments altogether.

Several factors are used to determine your credit score, such as:

• Your bill paying history
• All unpaid debt you owe
• The number of loan and credit card accounts you have and the length of time they have been active
• New applications for credit
• Bankruptcy filings

These factors and more are considered, and a three-digit number ranging from 300 to 850 is calculated based on them. Anything falling below 579 is generally considered to be a low or poor score.

When you have a poor credit score, taking out a mortgage loan to buy a house can be difficult. It can also result in higher interest rates on money you borrow, which in turn, can cause your monthly payments to be higher. So, what are your options if you still want to try to purchase a home?

Improve your credit score

The best way to make sure a less than ideal credit score won’t affect your ability to get a loan is to improve it. Luckily, there are several ways to do just that.

If you already have debt, make sure you pay it on time, every time. This shows you are a reliable borrower and is one of the easiest ways to directly boost your credit score. Paying the full balance you owe on an item like a credit card can lower your overall credit utilization, which in turn can improve your score. Depending on your situation, you may want to consider paying off all the debts you owe, although a manageable amount of debt paid on time can greatly raise your credit score by providing a strong credit history.

Also, review your credit reports to make certain all of your information is accurate. Inaccurate data can negatively impact your score and hinder loan approval. If you find inaccuracies, report them to the credit reporting agencies, as well as the company that initially reported the information.

Is it possible to buy a home with poor credit?

Most financial advisors will advise someone with bad credit to work on improving their score before taking on any major financial burden like a mortgage. While that is certainly good advice, it’s important to remember that every borrowers’ situation is different. There are many different types of mortgage loans, and lenders will look at other factors when determining whether or not a borrower is approved for a loan. For example, a lender will also take into account:

• The amount you have saved for a down payment
• Your overall amount of debt
• Your income
• Homebuyer assistance programs that may be available to you

Another option may be to find a reliable co-signer with a good credit score who would be willing to help you. A co-signer shares the financial responsibility of repaying the loan with the primary signer. This option can help as the lender also has the co-signer to rely on for repayment should you not be able to pay the loan.

Get pre-qualified to ease the process

When planning to buy a home, one of the first steps should be to get pre-qualified for a mortgage, which is a preliminary evaluation of a borrower by a lender that will let the borrower know how much they qualify to borrow.

Pre-qualification can give you peace of mind and help set your expectations. It can also help you understand what you might need to do to reach your desired goals for buying a home, whether it’s saving more for a down payment or trying to bump up your credit score for a better loan.

Trustmark offers a wide variety of mortgage loans that fit different budgets and lifestyles, and our mortgage experts will guide you through every step on your journey to owning your dream home. No matter your credit score, reach out to a Trustmark mortgage lender to discuss your options today.