Purchasing a home is a significant milestone for many individuals and families. However, for those with a credit score of 658, the question arises: is it possible to secure a mortgage and buy a house? This article delves deep into the intricacies of home buying with a credit score in this range, exploring various factors that can influence the process, potential obstacles, and actionable strategies to improve your chances of success.
Before diving into the specifics of buying a house with a 658 credit score, it's essential to understand what credit scores are, how they are calculated, and their significance in the home-buying process.
A credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850. It reflects how likely you are to repay borrowed money based on your credit history. The score is influenced by several factors:
A credit score of 658 falls into the "fair" category, typically ranging from 580 to 669. This score indicates that while you have some positive credit history, there might be issues that lenders view as potential risks. Buyers with this score may face higher interest rates and stricter lending criteria.
The short answer is yes; it is possible to buy a house with a 658 credit score. However, there are several factors that will influence your ability to secure a mortgage:
Different types of loans have varying requirements when it comes to credit scores:
A larger down payment can improve your chances of getting approved for a mortgage. Generally, a down payment of at least 20% can mitigate some risks associated with a lower credit score, potentially leading to better loan terms.
Your DTI ratio, which compares your monthly debt payments to your gross monthly income, is a critical factor in mortgage approval. Lenders typically prefer a DTI ratio of 36% or lower. If your DTI is high, it may offset the benefits of having a 658 credit score.
A stable employment history can enhance your application. Lenders prefer applicants with steady income and employment, particularly over the last two years.
Other factors such as savings, existing assets, and overall financial health can also play a significant role. Lenders will assess your entire financial picture, not just your credit score.
While a 658 credit score may present challenges, there are several strategies you can employ to improve your chances of securing a mortgage:
Consider taking steps to enhance your credit score before applying for a mortgage:
Saving for a larger down payment can lower your loan-to-value ratio (LTV) and reduce lender risk. This may result in better interest rates and loan terms.
If possible, consider enlisting a co-signer with a stronger credit profile. This can improve your chances of approval and potentially lower your interest rate.
Different lenders have varying criteria and may be more lenient toward certain aspects of your financial profile. It's beneficial to compare multiple offers to find the best fit for your situation.
Obtaining a pre-approval letter from a lender can give you a clearer understanding of your budget and strengthen your position when making an offer on a home.