Are interested in buying a house in Chicago? If so, do you know your current credit score and how it will impact your ability to get a loan? In our latest post, learn more about how your credit score affects buying real estate in Chicago.
When considering buying a house in Chicago, one of the first things you should take a look at is your credit score. This score will have a big impact on the amount you can borrow as well as your financing terms.
Why It Matters
Banks and lenders will use your credit report to determine if lending money to you is a good investment. They want to determine the likelihood of getting their money back while making some money on the interest. If they feel you will not be able to pay the loan, or if you show a history of missed payments or open debts your interest rate will be higher or you may not be able to qualify at all. With great credit, you can get an FHA loan for as little as 3.5% down. As your credit score drops, your down payment will go up. Upwards of 10% for scores in the 500’s.
How To Improve It
If you think your credit score might be low, get a free copy of your credit report right away and begin repairing the things you can. Pay off what debts you can. You will be surprised at how much paying off old balances can raise your score. If there are items you are unsure of, fight them. Demand proof of your debt and ensure the debtor took the appropriate steps when trying to collect their funds. The credit bureaus will remove items from your report if the debtor cannot provide the necessary documentation. Consider hiring a credit repair service to help you fight inaccurate debts and arrange repayment plans. Just make sure the company is legit and has high reviews.
What’s a Good Score?
To qualify for an FHA loan, you will need to have a credit score of 580 or above. You can still qualify with a lower score, however, you will need a larger down payment. To get a conventional loan, lenders typically like to see a score of 620 or higher. VA loans do not have a credit score requirement.
What Lenders Look For
They want to make sure you are a good investment. Aside from the score itself, they will look at open lines of credit, missed payments, short sales, cash advances and credit inquiries. Some of these things might scare off lenders. However, if all debts have been paid, on time and without any blemishes, you are more likely to get the approval you are after.
The Big Three
According to The Balance, a credit bureau is a company that collects and maintains individual credit information and sells it to lenders, creditors, and consumers in the form of a credit report. Credit bureaus get their information from many sources including courts, employers and the debtors themselves. You can visit the “Big Three” using the links below. You will also be able to obtain a free copy of your credit report that you can use before you begin your home shopping.
How To Buy With Bad Credit
The best way to buy a house in Chicago with bad credit is to buy direct. Luxdoor Invest is a professional home seller that would love to help you purchase a home. Whether you require financing or are able to pay in cash, we will likely have a solution to help you get on the path to homeownership.