Now that you have decided to invest in your dream house, you must be wondering how much you will need to save in order to make a huge down payment. As a first-time homebuyer, it can be quite challenging to figure out while deciding the mortgage and finalizing the investment property. In this guide, you will learn, you will get an insight into home loan options with low down payment for simplifying your loan origination process. Before discussing any further, are you aware of what is a down payment?
A down payment is a lump sum amount given to the banking institution while taking the housing loan. This amount is the same percentage of the loan which is given upfront to the lender. The higher the down payment amount, the lower is the amount of loan left to repay. High down payment also indicates that the monthly EMIs will be lower, and it also makes the borrower eligible for getting the loan on low-interest rates.
What are the factors on which the eligibility of a borrower depends?
Every private lender or lending institution has its fixed criteria or eligibility factors for determining loan eligibility. However, here are a few common aspects that are taken into consideration while deciding loan eligibility:
- Sources of income
- Consistency of cash flow in the bank account
- Credit score
- Repayment capability
- Outstanding debts
- Any defaulted loan amounts
What are the mortgage options for a bad credit score?
If a below-average credit score is preventing you from applying for a loan, you must know that you can still get the desired loan. Check out the below-mentioned ranges in which your credit score may fall and what are mortgage options available in those cases:
Credit score is less than 580 and greater than 500
To get the desired loan amount, individuals are required to have a credit score of above 700. However, if that is not the case and your credit score is lower than 580, the only option to get the loan amount is to make a huge down payment. Most of the private lenders or financial institutions ask for a minimum of 10% down payment to closing if you have a credit score less than 580 or close to 500.
Credit score is lower than 500
It is always advisable to raise your credit score before applying for a loan amount. A high credit score allows borrowers to get the desired loan amount on lower interest rates. This is because a high credit score represents that the borrower has been a responsible buyer in the past and will repay the loan amount on time. However, now that your credit score is lower than 500, you can follow the following tips to improve it:
- Pay off all the outstanding debts
- Always pay your credit card bills at the scheduled time
- Remove any flaws in your credit report
- Take small personal loans and pay them back on time to reflect as a responsible buyer
If you are planning to buy your dream house, it is essential to go through the first-time home buyer requirements for a smooth loan origination process!