They really ought to teach this stuff in school: real-life, day-to-day economics. St. Cloud youngsters out on their own for the first time are usually left to trial and error when it comes to mastering things like how to lay out a personal budget or use credit advantageously. Or even how to go about selecting a bank, or opening a checking account…
So when it comes to buying their first St. Cloud home, it’s very common for newcomers to put off confronting the whole daunting issue. When you’re still new to your career, tackling a purchase involving years’ worth of income channeled through a maze of unfamiliar procedures is easy to put off. But when the delay stretches well past the point in their financial lives when it would be clearly advantageous to own rather than to continue renting, it’s the same thing as throwing hard-earned cash overboard.
Since the asking price for even the most modest St. Cloud home is a number with multiple zeros on the end, you might assume that common sense indicates it’s out of reach. All the more so if early mistakes handling credit cards or student loan troubles have damaged your credit score. The good news is that potential home buyers with less than outstanding credit can still buy that first home—given some careful financial planning and research on your part.
They really ought to teach this stuff in school! That having been said, here is a broad-brush, very basic rundown of the lay of the land aimed at first time St. Cloud home buyers:
- The most important factor banks use to determine your mortgage eligibility is your FICO (Fair Isaac Corporation) credit score. The numbers range from 300 to 850, are based on a number of factors including how much debt you have and your payment history. In general, borrowers will need a credit score of at least 650 to qualify for a conventional home mortgage loan.
- BUT, it’s not the only factor. Although your credit score tops the list of elements that determine your eligibility for a mortgage, banks will also consider the amount of money you can commit to a down payment. Saving up may delay your first home purchase, and definitely takes discipline…but today, the amount you need is changing. Different lending institutions have different rules for determining eligibility, and some offer-
- Non-conventional loans. Today, first-time home buyers with relatively low credit scores can often secure such loans. You should research St. Cloud banks to find those currently offering non-conventional loans to borrowers with qualifying credit histories. You should also consider a Federal Housing Authority (FHA) loan, which eases credit requirements. For example, you might qualify for an FHA loan with a credit score as low as 580 with a down payment of just 3.5%!
- You can also use money from an IRA for your down payment. In other circumstances, withdrawing money from your IRA before age 59 ½ means paying a 10% penalty, but that rule doesn’t apply when you use your IRA to purchase a first home!
Bottom line: a low credit score doesn’t necessarily mean you can’t buy your first St. Cloud home. I’m here not only to help you find a home, but to help clarify the options that make possible that dream of owning your first home. Call me anytime!