Are you looking to purchase a home in Los Angeles County but have bad credit? Don't worry, you're not alone. The City of Los Angeles Department of Housing (LAHD) offers two programs, the Real Estate Purchase Assistance Program (LIPA) and the Mortgage Credit Certificate (MCC), that can help you achieve your dream of homeownership. When it comes to mortgages, lenders use a different credit rating system than car lenders and credit card companies. Mortgage credit scores range from 300 to 850 and use algorithms specific to the mortgage industry.
Many first-time homebuyers have never had their credit checked by a lender, and when they do, 34 percent find errors. It is important to address any errors on your credit report before applying for a mortgage. Conventional loans are the generic name for mortgages backed by the government's largest mortgage agency, the Federal Housing Finance Agency (FHFA). The FHFA backs 81 percent of all U.
S. mortgages, so it's likely that your mortgage is also backed by the FHFA. Conventional loans currently require homebuyers to have a minimum credit score of 620 and make a minimum down payment of three percent. FHA loans date back to 1934 and are the original “bad credit” mortgage loans.
FHA loans require a minimum credit score of 500, and applicants with credit scores of 580 or more can make a 3.5 percent down payment. The FHA even makes provisions for buyers with no credit rating. VA loans are mortgages with no down payment for veterans and active duty members of the armed forces. The Department of Veterans Affairs administers the VA loan program and requires homebuyers to show a minimum credit score of 580 at the time of purchase. The good news is that small changes in your credit can lead to significant changes in your score, and with every 20-point improvement, you save money.
For example, if you are a homebuyer using a conventional mortgage with a credit score requirement of 620, the homebuyer assistance program you use for the down payment will also use the minimum of 620. Credit report errors can affect your score by more than 100 points. Another great way to improve your credit score is to make timely payments to your creditors. In just 30 days, you'll start to see an improvement. The first step to buying a home with bad credit is to get an official pre-approval for the mortgage.
Your pre-approval will reveal your credit rating, show your current mortgage options, and show you the path to follow to get higher scores. Start this step now if you're not buying a home in the next 30 days. Some homebuyers have credit scores above 800 and can't get approved, and others have credit scores of 500 and buy their first home in 30 days. This is especially true in California, which has some of the highest property prices in the United States. The Los Angeles County Development Authority (LACDA) provides down payment assistance to low- and moderate-income households that cannot afford a new home. If a mortgage company hasn't verified your credit in the past 90 days, it's smart to get pre-approved before looking for a home, even if you're in the “thinking about it” phase.
