Q: I am gainfully employed and would like to purchase my first home. My credit score is low because I am just starting to establish credit for myself. My total debt is less than $2,500 which I am working on clearing up. My credit is poor (585). When should I start my first homebuyer's program?
A: A good place to start is with HSH's suite of first-time homebuyer help and resources.
Your process of preparing to buy your first home starts about a year or more before your closing, and begins with establishing and improving your credit score. As you're just starting out, it may take you a little longer than 12 months to build up your credit and amass some savings for a down payment, closing and moving costs. "Saving for a down payment" looks at how much savings you'll need to amass and some tips to help you get there.
There are a lot of decisions and choices you can make well in advance of looking at houses or even talking to real estate and mortgage professionals. Considering what you want or don't want and need or don't need well before you start can help narrow your focus and help eliminate confusion. Our "Essential Steps to Successful Home Buying" outlines these for you.
As far as a mortgage goes, with a FICO 585, you will have a little ways to go before lenders will be able to help you; a FICO 620 is pretty much the minimum score for which a loan can be written. This is changing, though, and the FHA program theoretically will back a loan to a borrower with a FICO as low as 580 and a down payment as small as 3.5 percent -- the problem is that lenders are still afraid of taking on risky borrowers, and have imposed so-called "overlays" on credit scores and such, so they will only make a loan to you if you are well above the standard minimums.
Though you'll still need to meet a FICO 620 minimum credit score requirement, Fannie Mae and Freddie Mac back mortgage programs that have easier qualification and lower down payment requirements, too. You can compare FHA loans against HomeReady and HomePossible program to see if one of these mortgage avenues might work for you.
Right now, you'll do well to start building up both your credit score and your savings. It can be a challenge to do both, but borrowing and repaying on time is the only way to do it, as is squirreling away as much cash as you can. Set some goals, as in "I want to improve my credit score by n points over the next six months," or "I want to save $1,000 over n period of time" and work toward them.
Since you have some time, read up on mortgages, housing costs, maintenance and more, and start to get to know yourself as a potential homeowner and mortgage borrower (What kind of house do I want? What can I afford? Where can I afford to live? How much will commuting cost me?). There are plenty of questions like these; you don't need to answer them all today or all at once, but the more answers you have, the more confident you'll be as you go along.
