PSA: You Don’t Need Perfect Credit to Buy a House
In honor of risk month, we want to dispel the myth that you have to be perfect in order to be a homeowner (perfect credit, perfect finances, perfect life). So we’re sharing stories about Millennials who took “risks” in order to become first-time homebuyers. While it may not be right for everyone, there are definitely some people who will find the rewards outweigh the potential risks. Interested in reading why Millennials may be so risk-averse to homeownership? Read “You May Never Feel ‘Ready’ To Buy a Home—Here’s Why That Shouldn’t Stop You.“
Yuri Cataldo, a creative strategist and entrepreneur, said a divorce decimated his credit, but he didn’t wait months for it to get back to an “excellent” category before purchasing a home.
“My house had gone into foreclosure and I couldn’t afford to keep up with the credit card payments. Both killed my credit,” he says.
In 2015, his credit scores varied by bureau, but ranged from 670 to 710. By no means were these considered bad, but they weren’t as high as they had been.
In Boston, rent was high, so he decided to start house hunting instead of looking for rental properties. He worked with a mortgage company specializing in working with people who had credit scenarios like his, and he got a grant from the National Homebuyers Fund Organization that covered his down payment.
Why it’s a risk:
While you can buy a home with a credit score in the high 500s, acredit score of 740or above will get you the best interest rate on a mortgage. Yes, you may pay higher interest rates with a lower credit score, but again, you don’t want the market to pass you by while you’re trying to achieve a perfect credit score.
Why you might need to take on this risk
Millennials credit scores are OK,but not great. For example, on Experian’s credit rating system ranging from 300 to 850, millennials fall in the fair category between 580 and 669. The average score of younger millennials is 652 and the average score of older millennials is 665. That’s partly because millennials haven’t had the chance to build a robust credit history yet. Other factors at play could be that their on-time rent payments aren’t being reported to their credit. Or it could also be that their income is modest, and relying on a credit card to pay for an emergency could eat up their credit utilization affecting their scores.
The reward
Cataldo was able to buy a condo, saving money on rent and keeping his housing costs stable as he worked on getting his finances back in order.
How to make it feel less risky
Buy below your budget
To mitigate his risk, Cataldo ran some worst-case scenarios to account for unforeseen circumstances. Ultimately, he decided to buy a condo.
“I didn’t make any aspirational leaps based on my future salary,” he says. “It was the best option that I could afford at the time.”
尽可能地提高你的信用
Plus, there are a few things you can do to possibly push you into the next credit score tier and helping you qualify for a better rate. Get your credit report and check for errors, and address any discrepancies. Your credit report will tell you how you can contact the account’s servicer. Another trick? Keep your credit utilization below 30 percent and know when yourcredit card companyreports to the banks because it could be a day other than your due date.
Again, while this is just one person’s story, that doesn’t mean it’s a rare occurrence: Talk to a finance and/or mortgage professional to weigh how this risk looks for you.