Buying a house is part of the American Dream. Everyone dreams of owning their home, and it is a great financial move for many people. Buying one is difficult, though. You need a massive loan in order to pay for a house, and qualifying for a mortgage loan with a reasonable interest rate requires a good credit score. This post will teach you how to improve your credit score to buy a house.

Unfortunately, many of us struggle with our credit. Between student loans, car payments and consumer debt, there are many things that can drop our credit score and ruin our chances of getting a decent mortgage. Fortunately, there are plenty of things that you can do to improve your credit score to buy a house.

Ask About Credits and Grants

The first thing you should do is ask about first-time home buyer credits, grants, and programs. Home ownership is not just good for you, it is good for your community. Because of that, there are lots of programs out there to help first-time home buyers afford their homes.

Good Neighbor Next Door is a program that offers a 50% discount on home prices in specific areas targeted for revitalization. You have to be a law enforcement officer, teacher (pre-K through 12th grade), firefighter, or EMT to qualify.

In addition, it is common for states and even cities to have their own programs available for first-time home buyers. Your mortgage loan officer can help you find these and determine if they are right for you.

What is Credit Rescoring?

Credit rescoring may be a good option if you have bad credit or a limited credit history. Rescoring is a process that allows your creditors to make quick updates to the information in your credit history. Credit scores are mostly an automated calculation and they are only updated when new reports about your outstanding loan balances and past due bills are submitted.

To rescore your credit you have to work directly with your creditors to manually update the information in your credit history to more accurately reflect your current situation. This can include fixing errors and updating loan balances to raise your credit score quickly. You can often do this through your mortgage lender.

Compare Loan Types and Your Eligibility

FHA Loans

These loans are insured by the Federal Housing Authority, which gives lenders an extra layer of protection. If you default, the lender will not be losing as much money. That makes these great loans for people who might otherwise be considered a risk. The interest rates are very competitive, down payments are smaller, and closing costs are lower when compared with conventional loans.

USDA Loans

These loans are available in rural areas. If you qualify for one, they offer low, fixed interest rates and require no down payment. Note that these are only available in rural areas, so if you are buying a home in a large city you cannot qualify for a USDA mortgage loan.

VA Home Loans

These are loans specifically for active-duty service men and women, veterans and military spouses. They are only for first-time home buyers, as well. Even if you are serving or have served in the military, if you have already purchased a home in your life, you cannot qualify for a VA Home Loan.
These loans are guaranteed by the Department of Veterans Affairs so they have very low interest rates, no down payment, and no mortgage insurance requirement. They are an excellent way for those who qualify to get a manageable mortgage loan.

Fannie Mae HomePath Loans

This is a federal program that is designed to reduce closing costs. It will not help much with the mortgage itself, and it is only an option if the home you are purchasing is a designated HomePath property. You will save about 3% on the closing costs. It is not much, but every little bit helps, and you may be able to combine this with other first-time home buyer benefits.

Energy-Efficient Mortgage

While not a mortgage in itself, this FHA program allows you to add financing for adding energy-efficient home improvements to your FHA Home Loan. This will not save you money on your mortgage directly, but it will save you money on your energy bills, and that can help you out more than you might think.

Native American Veteran Direct Loan

The Department of Veteran’s Affairs offers this direct loan program to Native American Veterans to help them purchase homes or build homes on Federal Trust Land. There is no down payment associated with these loans, and there are very low closing costs. There are a few requirements for eligibility such as credit standards, proof of payment eligibility, and intent to live in the home being financed, among others.

Prepare Your Paperwork and Find a Realtor

Once you have an idea of how you want to improve your credit score and which loan program you want to use, you can estimate your budget, including closing costs and home insurance. Then you need to find a realtor to help with finding and buying a home within your budget.

You will need to gather some paperwork before you meet with a mortgage loan officer, too. Pay stubs, account statements, W-2s, current loan and credit statements, two years of tax returns, and contact information for your landlords for the last two years.

Call the FMI Team

Finding the right financing options is complicated, and FMI’s team of experts has the experience to navigate this process with you. We will help you find the right mortgage loan that meets all of your needs and provide further assistance if you want to learn more about how to improve your credit score to buy a house. Call the team at Fairfax Mortgage Investments to get the process started today.