Mortgage lenders are taking less risks during this time of COVID-19. Most of them have raised their credit score limits to approve applicants for a home loan. Buyers with a credit score as low as 590 could purchase a home last month, but that is not possible now.
If you are hoping to buy in the next year, but your credit score needs a bump. Here are some ways to improve your score.
Believe it or not, your credit score rises when you don’t use your credit cards. It is okay to have them, just pay down the balance and you’ll see a large jump in your score for having 30% or less as the balance, the lower the better. Your retail cards (store credit cards) balance matters too, so be sure to keep them at 30% or below.
If you have any personal loans or vehicle loans, make your payments on time every month. Missing even one payment will drastically lower your credit score.
Rent payments are just as important. A mortgage company does not want to see any late rent payments. If you have ever broken a lease, or not paid your balance on a home that you formerly lived in, you need to get that old balance paid. You may be able to negotiate with the former landlord to lower the amount, but it needs to get taken care of before a financial institution will lend you the money to purchase a home.
After you have paid down your debt you will see a drastic increase in your credit score. This will allow you to get approved for a home loan. At that point, you need to save money for a down payment and closing costs. An FHA loan requires 3.5% down (but it can be a gift, if you have someone willing to give you the money for a down payment). In addition to a down payment, you will need to pay closing costs which are about 3% in Texas. Depending on the home you purchase, the seller may be willing to pay your closing costs, but not with every house. If you are purchasing a lower-priced home, there will be more competition and it will put you at a disadvantage if you need help with your closing costs.
If you have a steady job and you are spending less during the pandemic, it is a great time to start repairing your financial situation.
Daiquiri Beebe is a Huntsville resident and realtor with Abby Realty.