Does Your Credit Need to Be Perfect to Buy a Home in Albuquerque?

Do you think you have to have perfect credit to buy a home in Albuquerque? Many people do. But the reality is that quite a few people buy homes without a credit score above 700.

Even so, poor credit scores keep people from even trying to buy a home, assuming they won't qualify. Yet, as with most things, knowing how credit works is the key to making things happen. Educating yourself about credit could very well change your life.

Here are a few key things you should know about credit and how you can qualify for a mortgage with a less-than-perfect score.

What score is required?

Lenders vary on the minimum score to qualify for a loan, but 580 is the usual number. That’s the minimum credit score that is typically required for an FHA loan, although scores can go as low as 500 with a higher down payment.

How does your score affect your mortgage rate?

The rule of thumb in general is the lower the score, the higher the rate. You may still get approved with a low score, but you may need a co-signer or only qualify for a reduced amount.

Are there easy ways to raise your credit?

If you need to raise your score, first check your credit reports for errors. Perhaps a collection account that was paid off long ago or that’s not even yours could be dragging your score down. You can get a free copy credit of your credit report every 12 months from each credit reporting company at

Experian Boost is a newer service that allows you to raise your FICO score by getting “credit” for making timely phone and utility payments. According to Experian, the average user raised their score by 13 points, which could be enough to get you over the hump.

Should you spend some time working on your credit before you buy a home? That's up to you. If you can raise your score in a few months and it will help you qualify or lower your rates, then it's worth it. Your lender can advise you on where to concentrate for the biggest and quickest improvement. But if raising your score a few points won’t make a big difference in your rate and you’re ready to roll, you might not have much incentive to wait.

Remember that even a small change in your rate can mean huge savings over time. For example, the difference between a 3.5 percent rate and a 4 percent rate on a $200,000 mortgage is $56 per month. That’s a difference of $20,427 over a 30-year mortgage term.

What is the best loan for low credit scores?

An FHA loan is often the choice of buyers with low credit scores and/or minimal down payments funds. Their criteria is among the most lenient, but you will pay for that leniency. You may be able to qualify for an FHA loan with a minimum credit score of 580 and a 3.5% down payment. Taking out an FHA loan does mean that you'll need to pay mortgage insurance, also known as a mortgage insurance premium, throughout the lifetime of your mortgage. Currently, the mortgage insurance premium on an FHA loan is 1.75% upfront, then 0.7 to 0.85% annually.

Can you buy a home in Albuquerque with less than perfect credit? The answer may depend more on your actions than you think. If you want to explore your home buying possibilities, contact us today. We'll be happy to help you explore your options.