Homeownership is still a major part of the “American Dream”. It creates long-term financial stability as the mortgage is paid down and the home appreciates in value. It also creates a sense of pride, satisfaction, and enhanced well-being. 

However, being able to buy a home with less than perfect credit is much more difficult than it was even 5 years ago. The guidelines to qualify for a home mortgage, or receiving any kind of credit, now require a much larger down payment, a lower debt to income ratio, as well as a higher credit score.

Mortgage brokers are now stating that it takes a minimum 640 to 650 credit score just to be considered for a loan to purchase a home. Given the current guidelines, the estimated 43 million people who have a credit score of 599 or lower cannot purchase a home without cleaning up their credit history and increasing their credit score first. This is also true for people that want to refinance a high-interest or adjustable-rate loan.

If you have less than a 640 credit score: there is good news! You can eliminate the derogatory items from your credit report and sufficiently increase your credit score to the 640-650 range. With a 640 FICO score, you will pay higher points and a higher interest rate on your loan, but the purchase of a home and on-time payment of the mortgage each month, you will increase your score over time so that a refinance at a lower rate is a possibility in the future.

Eliminating these negative items from your credit report does take some time. So even if you do not yet have a sufficient amount of money for the down payment, you should begin to clean up your credit report and increase your credit score as soon as possible. Doing this will allow you to purchase a home immediately, when you have enough for a down payment.