KIDS WANT TO BUY A HOUSE, BUT THEIR CREDIT ISN’T TOO HOT?
Is your Child ready to buy a house, but his/her Credit isn’t the best?
It happens to the best of us, especially after the pandemic. Whether your Child didn’t build up a credit score or just doesn’t have good Credit right now, there are ways to help your Child get ready to buy a house.
As a parent, you can help your Child get started on adulthood by buying a house even with less than perfect Credit. With on-time mortgage payments and not overextending his/her Credit, your Child can build a successful future just by buying a home.
What Credit Score do you Need to Buy a House?
Today credit guidelines are somewhat relaxed when it comes to getting a mortgage. FHA loans, which are great for first-time homebuyers, only require a credit score of 580. If your Child wants a conventional loan or is a veteran of the military, a higher credit score may be necessary, but great Credit isn’t essential for anyone.
This doesn’t mean you shouldn’t help your Child improve his/her Credit to buy a home, but it’s nice to know they may be able to buy a home with a score as low as 580.
Ways to Help Improve your Child’s Credit
If you want to help your Child improve his/her Credit, here are a few simple ways:
Make your Child an Authorized User
If you have great Credit, share the love with your Child. Make him/her an authorized user on your account. You don’t have to give him/her access to the credit card either. Just by naming your Child on the credit card, the credit card company will report the payment history on his/her Credit too.
Here’s the trick – make sure your credit card company reports authorized users to the credit bureaus because not all do. If they do, your on-time payment history and low credit balances will help your Child’s credit score.
Co-sign a Credit Card or Loan for your Child
This is a riskier option, but you can co-sign a credit card or loan for your Child. Just make sure your Child makes the payments on time. If he/she misses payments or defaults on the loan, you become responsible and it can hurt your Credit.
If your Child handles the loan responsibly, though, it can help him/her build Credit to get approved for a mortgage.
Ways your Child can Improve his/her Credit
Of course, we can’t do everything for our children. Your Child will have to work on fixing his Credit too. Here are a few ways.
Pay Bills on Time
Payment history makes up the largest portion of the credit score. If your Child makes his/her payments on time regularly, it will help increase the credit score fast.
Keep Credit Balances below 30%
As much as it’s tempting to spend all of your credit limit, it hurts the credit score. Teach your Child to keep his/her credit limits at 30% or less of the credit line to increase his/her credit score the most.
Avoid Applying for New Credit
Every time your Child applies for new Credit it hurts his/her credit score. Instead, encourage your Child to keep track of the Credit he/she has and to handle it well. The older your Child’s credit accounts get, the better it is for his/her credit score.
Other Ways to Help your Child Qualify for a Mortgage
Credit scores aren’t the only way to qualify for a mortgage. If your Child has a mediocre credit score but has other compensating factors, it may be easier to secure a mortgage.
Here are other ways you can help your Child get a mortgage.
Give Money for the Down Payment
The more money your Child puts down on a home, the more likely he/she is to get approved. Even with bad Credit, a larger down payment can help. It shows lenders that you have ‘skin in the game’ and are likely to make your payments on time.
Co-sign on the Loan
If you want to help your Child get approved, you can co-sign on the mortgage. While this is risky if your Child doesn’t make his/her payments, it can help your Child buy a home. Once your Child has a higher credit score, he/she can refinance you off the loan and own it on his/her own.
Encourage Stable Income/Employment
Lenders look for stability when approving a mortgage. If your Child has stable income/employment, it can offset the lower credit score. Encourage your Child to find a career and stick with it. A two-year employment history at the same job and with increasing income can increase your Child’s chances of loan approval.
Help your Child Pay off his/her Debts
If your Child has a lot of debts, consider helping him/her pay them off. This includes student loans. Any payments your Child must make each month takes away from the money he/she could use to pay the mortgage. The higher a person’s debt ratio is, the harder it is to get approved. Helping your Child get out of debt can increase his/her chances of getting a mortgage loan.
Final Thoughts
Helping your Child buy his/her first home can be one of the most rewarding ways to parent. You’re helping your Child make one of the most important investments of his/her lifetime.
Even if your Child doesn’t have great Credit, there are ways to get a mortgage. The key is to show that your Child is a good risk. Lenders want stability with Credit, income, and employment. The more stability your Child can show, the more likely he/she is to get a mortgage even with bad Credit.
Contact us for a no-obligation conversation. Valley Mortgage is the largest independent mortgage lender in North Dakota and northern Minnesota. We’ve been helping folks like you for more than 38 years. If you haven’t reviewed our website, click here. Please call us at 701-461-8450 to get all the details about home mortgages and refinancing. There’s no cost, no obligation. Valley Mortgage does all the processing right here in our Fargo, ND office.