Everything You Need to Know About Credit Scores When Buying A House
Today we're going to talk about credit scores. The good, the bad, and the ugly. What I found is there are a lot of myths that people believe about credit scores. A lot of people believe that you have to have a perfect credit score to be able to buy a house. And a lot of people believe that if you have a bad credit score, you'll never be able to buy a house. I'm going to talk a little bit about where your credit should be and what are your options if your credit isn't where it needs to be. So, my suggestion as a minimum baseline for a credit score would be 660. That's where I would start for a baseline credit score. Obviously, we have lenders who can do lower. I actually have a lender that I work with that can do loans with a credit score all the way down to 500.
There are some caveats to that. Any score between 505-580 you’re going to have to have a higher down payment. It’s usually 10%, and you will have a higher interest rate over the life of the loan. Most mortgages are 30 years, so if you have a one-point percentage higher interest rate over the life of the loan, it ends up costing you thousands of dollars over 30 years. So, in my mind, you need to do one of two things. If you are in a position where you need to buy a home, and you have a less than perfect credit score, my goal is to get you in that home as soon as possible and then have you fix your credit. And then I would suggest that you refinance your loan. Most loans are able to be refinanced after six months. Sometimes they're after a year, but that is going to save you much, much more money over the life of the loan.
So, you get your low credit score loan, move into the house, and then six months to a year later, you refi your home after you've improved your credit score. That's my suggestion for people who need to get into a home and have challenged credit. My other suggestion for people who aren't in an urgent situation is to speak with a credit repair specialist. Just like a real estate agent, not all credit repair specialists are created equal. We actually work with an amazing credit repair specialist who will guide you through the process step by step, and she is worth her weight in gold. They usually charge anywhere from $80-$150 a month, and she is priceless. She's actually repaired my wife's credit, and she's in the process of repairing things on my credit. My credit honestly isn't bad, but she is such an expert that she can go through and, and basically guide me along the path to making me as efficient as possible.
Because there's a lot of things about credit that seemed very counterintuitive. Everybody thinks, Oh, if I get a bunch of money, I will just pay off all my balances all at once. And most of the time that's not the best way to handle your credit. It's usually better to pay down your balances to about 10% of your credit utilization, and then move on to the next balance and pay that down to 10%. So, you have lots of revolving balances with continual monthly payments. So, there's a lot of things about credit that are very counterintuitive. So, a credit repair specialist will be absolutely worth their weight in gold. And that's what I would like to see most people do, is get into a credit repair program, get their scores up to at least 660, and then start the process of looking for a home. It may take a little bit longer than you originally expected. But, long-term, it's going to be much better for your financial health than getting a low credit loan option. I hope that helps. If you have any questions at all, click the link below and I'll be happy to connect with you there.