The common perception of many home buyers is that having low credit makes owning prohibitively expensive, but that isn’t as clear-cut as it’s made out to be.
“I often tell potential home buyers in this environment that they need three things to be able to secure a house: a pre-approval letter signifying your credit, a strong realtor and a strong lender,” said Frank Kolencik of Fulton Mortgage Company.
As housing inventory tightens, it’s not uncommon to have 10 or more offers on houses around the $500,000 range which means being able to show a pre-approved credit letter is a must for first-time buyers. A FICO credit score, for example, lower than 580 could still qualify you for a Federal Housing Administration loan but then the down payment increases from 3.5 to 10 percent. Similarly, credit scores can be improved but one might have to pay a steep monthly fee.
However, there are a number of options buyers might not be aware of. Many mortgage lenders, for example, will advise people. Kolencik notes that he’s met with buyers up to six months to a year before they’ve been ready to purchase the loan. They generally live with family, friends or share the rent with a partner while building up their credit score.
Ultimately, however, Kolencik says, he just offers advice. “You can lead a horse to water but you can’t make them drink,” he says.
Mike Ott of First Heritage Mortgage says that home buyers make the mistake of going to a credit repair agency thinking they will get you the results you need when the service can often be done for free for the right lender.
If a home buyer’s score doesn’t meet the typical minimum requirement (in the 620 range) and a client’s credit repair requires a longer-term relationship, they can be redirected to non-profits such as Operation Hope. For instance, Fulton Financial Corporation is involved in a grant program with Operation Hope where, depending on eligibility, buyers can receive up to a $2500 grant towards their closing costs or down payment.
HUD-approved agencies are available to help low income home buyers as well. The Center of Assistance of Families has processed over 500 families in the past year with its home ownership program. As a HUD-approved credit counseling organization, it’s not allowed to charge people and they are subsidized in return.
Some area real estate agencies also offer financial literacy seminars.
Edmy Salazar, who co-founded DiMaVi realtors, got a financial consultant’s license with World Financial Group in 2018 to guide potential home buyers into making more important decisions. She originally ran weekly workshops at the Keller Williams realty office in Falls Church and now co-runs workshops at WFG’s office in Merrifield.
Workshops such as Salazar’s help, but the role of credit repair agencies can’t be discounted entirely. They have a licensed authority to take actions no non-profit or informal advisor can do. Donna Perkins, vice chairman of the National Association of Credit Services Organizations, and president of KC Credit Services, said her “company has helped millions of people alone.”
It’s worth noting that despite all the options, credit writing is still tight. The hope for lenders like Fulton’s sales manager Ryan Mutter is that people know they’re not permanently barred from owning for having bad credit.
“There are lenders that will go as low as 585 credit scores, but I wouldn’t say it’s opened up considerably industry-wise. Credit writing is still tight, especially,” said Mutter. “As far as programs go, I think there’s a perception out there that if your credit’s not perfect, you can’t buy a house, I think that’s not true, and part of what we’re doing is change that perception.”