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June 12, 2018
Do you have to be perfect to get a mortgage?When you picture the “perfect” home buyer, what comes to mind? Most likely, it’s a person with an excellent credit score of 740 (if not higher), with enough money in the bank to put 20 percent down, plus extra to cover the closing costs and any surprise expenses that come along, and with enough income to comfortably afford all of the monthly costs of owning a home.

Then there’s you. You might hope to buy a home—one day—but are far from being that perfect buyer today. There’s good news: You don’t have to be perfect, or anywhere close to it, to get a mortgage! A variety of home loans are available for a broad range of potential homeowners, yourself included.

The Down Payment

A down payment of 20 percent  of the home’s price is considered ideal, and all for a number of reasons. Putting that much down gives lenders a bit of reassurance, as they’re receiving a significant amount of the upfront cost. It also suggests that you’ll be responsible and less likely to default on your loan, since you’ve been able to set aside a considerable amount of money before purchasing a home.

If you don’t have enough to put 20 percent down, you have options. Veterans of the armed forces might qualify for a loan guaranteed by the US Department of Veterans Affairs. Although VA loans come from private lenders, they are backed up the VA and do not require any down payment.

Other low down payment mortgages include loans guaranteed by the Federal Housing Administration (FHA) or a loan with private mortgage insurance. In both cases, you can put down less than 20 percent, as little as 3.5 percent in the case of an FHA loan. Your monthly costs may be higher, though, as you’ll need to pay mortgage insurance until you’ve paid off at least 20 percent of the home’s value.

Your Credit Score

A high credit score, usually at least 740 out of 850, signals to a lender that you have a long history of being responsible when it comes to borrowing money. Having a lower score doesn’t necessarily mean you’ve been irresponsible or haven’t paid back your loans. It could just mean that you’re younger or that you haven’t been using credit for much time. A lower score can make getting the best mortgage (with a solid interest rate to boot) a challenge, but it doesn’t have to completely block your chances.

FHA loans are often available to people with credit scores in the 500s, for example. The exact score you need to qualify for an FHA loan depends on the amount you put down. The higher your down payment, the lower your score can be.

Your Income

How much you bring in each month, compared to how much debt you have and how much you’ll need to put towards owning a home, can also impact your mortgage eligibility. You don’t need to have a very high income to be approved for a mortgage, but it is important that your income is relatively high compared to the amount of debt you have. Generally, the total amount of all of your debts shouldn’t be more than 43 percent of your income.

Homeownership can be within reach, even if you’re not a classically perfect borrower. To learn more about your mortgage options, get in touch with us at First Option Mortgage today, and to learn more homeownership tips, check us out on Facebook or Twitter!

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