There are two elements to purchasing a home: qualifying for a home loan and making the down payment, and each can impact the other. A FICO score of at least 720 is recommended to qualify for a home loan with a good interest rate. First, check your credit reports from three agencies (Experian, Equifax, and TransUnion) to view your score as well as your credit history.


This history may include specific items that may prevent you from qualifying for a home loan. If you notice any inaccurate information, you can contact the credit bureau to dispute it. Proof of the mistake can expedite this process. Sometimes, you may be able to communicate with the creditor and have them amend your report.


Your credit report may reveal debts, and paying those off should be the next step in raising your credit score to qualify for a home loan as well as down payment assistance programs. Any delinquent accounts, which include late accounts, charge-off, collections, or judgments, must be paid to qualify for a mortgage. Allow at least six months to pass after paying off those accounts to establish a history of timely payments that can overshadow previous delinquent accounts to qualify for a home loan and assistance programs.


Reduce your debt-to-credit ratio by paying down bills, even if they are not delinquent. It’s recommended to lower your debt ratio to, at maximum, 12% of your total credit. Lower debt ratios are always better. During this time, avoid taking on any new debt, which can increase your debt ratio and lower your credit score. Although applying for a new credit card can decrease your debt-to-credit ratio if you do not increase your debt, the application temporarily lowers your credit score.


Even if you qualify for a home loan, you will still need a down payment, and a low down payment may increase the loan interest rate. Down payment assistance (DPA) programs can reduce the amount you need for payment. Each state offers various DPA programs with its own requirements such as securing a mortgage from a participating lender. Some DPA programs require you to repay the assistance, either concurrently with your mortgage or if you sell or refinance. In many cases, DPA programs require individuals to prove their ability to make their mortgage payments in a timely fashion; just because someone cannot afford a high down payment does not mean they cannot make their mortgage payments, after all. Securing a larger down payment will help individuals save money over time, so improving your credit score to qualify for mortgages with lower interest rates as well as down payment assistance programs can help homeowners save money in the long run.


Increasing your credit score can help you qualify for down payment assistance, in turn lowering your interest rate as well as the lifespan of your mortgage.