Buying a home can be an exciting part of a persons life. It is among the largest investments one can make in their lifetime and signifies a sense of accomplishment. But it can also be a very scary process, because it can often be a long, drawn-out process. Some of the trepidation people have is whether theyll qualify for a mortgage.
A prospective homeowner may have trouble locating a lender to get a mortgage if they have a short credit history or credit errors in the past. When borrowers don’t have high FICO scores—which are attained through consistent credit use and timely payments—lenders are usually reluctant to take on the risk of approving them. Fortunately for these borrowers, VantageScore, a new creditworthiness algorithm, has emerged to challenge FICO. The following tips can enable homebuyers to identify mortgage lenders that use VantageScore.
Owning a home is a dream for many, but it can feel out of reach if you have a less-than-perfect credit score. However, don’t lose hope! There are still ways to achieve your dream of homeownership, even with a less-than-stellar credit history.
The Power of Options: Exploring Your Loan Choices
While conventional mortgages may seem like the only option, there are other avenues to explore. Here are some loan options that might be more accessible with a lower credit score:
- FHA Loans: Backed by the Federal Housing Administration, these loans require a smaller down payment (typically 3.5%) and are more accepting of borrowers with lower credit scores.
- VA Loans: This option is available for current and former military members and typically doesn’t require a down payment. VA loans are partially backed by the Department of Veterans Affairs and are often offered to those with lower credit scores.
- USDA Loans: Similar to FHA loans, USDA loans are geared towards low-to-moderate income individuals with lower credit scores. However, these loans are restricted to homes in USDA-designated suburban or rural locations.
Credit Score Improvement: A Path to Better Opportunities
If government-backed loans aren’t your preference, improving your credit score can open up more options. Consistent on-time payments, diversifying your credit mix, and lowering your overall credit usage can all contribute to a higher score.
Buying Within Your Means: A Recipe for Financial Stability
If you purchase a home within your means, lenders will see you more favorably even with a lower credit score. They will examine your earnings and outlays to make sure you have sufficient cash on hand (also known as “residual income”) to cover unforeseen expenses. Try to save as much as you can for a down payment, but keep in mind that private mortgage insurance can assist in filling the shortfall if necessary.
Persistence Pays Off: Don’t Give Up on Your Dream
The mortgage qualification process can be challenging, but don’t let a “no” discourage you. It might simply mean more work is needed to evaluate your situation. Often, a “no” initially can turn into a “yes” with persistence, patience, and passion.
Your Credit Score: A Closer Look
VantageScore offers consistent, accurate and inclusive credit scoring models. Learn more about your credit score and its components at https://vantagescore.com/consumers/our-models.
Owning a home is achievable, even with a less-than-perfect credit score. You can overcome these obstacles and realize your dream of homeownership by looking into various loan options, enhancing your credit, and living within your means. Remember, with persistence and the right strategies, you can achieve your financial goals.
Ask Before Signing
The best way to find out is to ask which kind of scoring model the lender uses. There’s a strong likelihood that you will come across a creditor who employs the model based on the figures VantageScore provides. According to VantageScore, more than 2,200 lenders use its scoring model including some of the largest U. S. banks.
VantageScore is embedded into some of the major platforms across the financial industry. It is the only scoring model that is integrated into both the Nationwide Mortgage Licensing System and the Consumer Financial Protection Bureau (CFPB).
Can I Use a Broker to Find a VantageScore Lender?
For borrowers with poor credit, a mortgage broker is a good choice because they work with numerous lenders, each of which has different requirements for approval. After reviewing a borrower’s application, a competent broker can identify which lender in their portfolio best suits the borrower’s requirements. If a broker has a large lender portfolio, some of the lenders should use VantageScore as their main source of credit data. The borrower could ask the broker to steer their application in the direction of such lenders.
Why we’re using VantageScore
FAQ
Do mortgage lenders look at VantageScore?
What FICO score is used for FHA loan?
Do landlords use VantageScore or FICO score?
Who uses the VantageScore?
What does FHFA expect from Fico 10T and VantageScore 4.0?
FHFA expects that implementation of FICO 10T and VantageScore 4.0 will be a multiyear effort. Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the Enterprises.
Will Freddie Mac use Fico 10T & VantageScore 4.0 credit scores?
On October 24, 2022, the Federal Housing Finance Agency (FHFA) announced the validation and approval of both the FICO 10T and the VantageScore 4.0 credit score models for use by Fannie Mae and Freddie Mac (the Enterprises). After a multiyear transition period, lenders will be required to deliver loans with both scores when available.
When will Fico 10T & VantageScore 4.0 be implemented?
The FHFA expects that implementation of FICO 10T and VantageScore 4.0 will take a few years. Eventually, however, mortgage lenders will be required to deliver both credit scores to Fannie Mae and Freddie Mac when selling on their mortgages. Consumer credit scores are a critical element when it comes to qualifying for a mortgage.
What new credit score models are available for the enterprises?
On October 24, 2022, FHFA announced the validation and approval of two new credit score models, FICO 10T and VantageScore 4.0, for use by the Enterprises. Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores, when available, with each single-family loan sold to the Enterprises.