I’m looking to buy my first home for around $140,000. Last year was rough—I got laid off, which hurt my credit. But now I have a stable job earning $80,000 a year, and I’ve paid off all debts and collections. My credit score dropped to the 500s but has been steadily rising and is now at 620.
I’m talking to lenders about mortgages and would appreciate any advice to navigate this process more effectively. Thanks in advance!
Have your application run through an automated underwriting system (AUS). This will determine the maximum amount you can qualify for, and from there, you can set your budget. Any lender should be able to do this for you.
Find a local loan officer who comes highly recommended and takes the time to guide you. Ask them if there’s anything you can do during the process to improve your score.
You’ll likely qualify for a first-time home buyer (FTHB) program through conventional lending, but with a 620 score, an FHA loan might offer better rates. A caring loan officer is key here!
I agree with the advice above. Get a lender to run your scenario through an automated underwriting system and see what comes up. Great job getting your finances back on track!
With a 620 credit score, you meet the minimum for Fannie Mae and Freddie Mac loans. They offer a program that waives investor fees for first-time home buyers, so your credit score won’t result in additional costs. If your income is less than or equal to 80% of the area median income, you may also qualify for a better rate. Just make sure your debt-to-income (DTI) ratio is under 45%.
FHA allows for a 3.5% down payment with a minimum credit score of 580, so you’d qualify. Given your current credit score, FHA is likely your best option since its mortgage insurance is more affordable.
If your score reaches 620 or 640, you might also consider USDA loans, which allow for $0 down payment if the property is in a qualifying rural area.
I’m a lender in Arkansas, so feel free to reach out if you have questions about this state or neighboring ones.