How do I know if a RenoFi loan is right for my project?
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If a low credit score is preventing you from getting approved for a home loan, there are a few things you can do to bring it up pretty quickly. Depending on what items on your credit report are holding you down, these are some of the fastest strategies to boost your score.
Clean Up Your Credit Report
A mistake on your credit report could be pulling down your score. So before anything else, download the Credit Karma app to get access to your credit score today and every day going forward. Then, examine everything, while specifically looking for any accounts that show late payments or unpaid bills. And check out other interactive financial tools to see how different choices will affect your score.
- If you find an error: Contact your credit card company to dispute any errors. Provide in writing what you think is incorrect and why, and include any supporting documentation. You’ll also want to dispute the error with the company that provided the information, known as the furnisher. Check out a list of everything your dispute should include and where to send it.
- If you forgot to pay a bill: You may notice 2 charges: a late fee and an interest on the balance. Pay the balance immediately, and call the issuer to request a refund and try to work out a solution. By taking initiative, they may be willing to resolve the issue, which will prevent it from hurting your credit.
- If you find identity fraud: Notify your creditors or bank as soon as possible. The Under Fair Credit Billing Act, reporting a lost or stolen card protects you with a maximum liability for unauthorized charges of just $50 and also lets you off the hook for any future fraudulent charges. If you’re unsure if you’re a victim, one of the best prevention methods is setting up a fraud alert on your credit report.
Pay Twice a Month
If you’ve had some significant expenses recently that you put on a credit card for the rewards, it may be temporarily throwing your utilization ratio — or the amount of credit you have used compared with how much credit you have been extended by a lender — out of whack. Creditors only report balances to credit card companies once a month, so even if you’re paying on time, it could look like you’re overusing your credit. To keep your running balance lower, start breaking up your credit payments into at least 2 payments a month, which meet your minimum amount due, instead of paying all at once.
Hold Off on Any Other Big Purchases
And if you’re thinking about making a big purchase on your credit in the near future, put it on hold until after you’ve secured your home loan. Taking out a $35K loan for a new car will only lower your credit score. 10% of your credit score comes from loan applications, so just applying can negatively impact your score, while having a high loan balance brings it down even further.
Increase Your Credit Limit
If you’re not in a position to pay down your balances, you can try a reverse approach: request a credit limit increase. When your limit is raised and the balance stays the same, it automatically lowers overall credit utilization. For example, if you’ve maxed out a $1,000 limit and get a limit increase to $2,000, you’ve immediately cut your credit utilization in half. But keep in mind, the key is to not spend any of the new credit.
Keep Your Credit Cards Open
If you’re rushing to increase your credit score, closing out various credit cards will only make it more difficult. When you close a credit card, you lose that credit card’s limit, so when calculating your overall credit utilization—which factors in all open lines of credit—it will lower your score. Instead, keep the card open, and just use it occasionally so the issuer doesn’t close it.
Find a Housing Counselor
For additional guidance on improving your credit score to help you qualify for a home loan, you can talk to a housing counselor, who will offer advice based on your specific situation and help you determine the loan terms that best fit your objectives. Search for a HUD-approved counselor in your local area here.
So What Else Will Your Lender Look At?
If you’re still searching for the right way to finance your renovation, you’ve come to the right place. Our RenoFi loans are the smartest way to do it, allowing you to get everything on your wishlist at the lowest rates possible using the post-renovation value of your home. Sounds pretty great, right? So if you’re wondering what this looks like for you, here’s a look at the four main factors lenders will use to dictate your rate for a RenoFi loan.
1. Your FICO Score (AKA your Credit Score)
You obviously already know this is important — hence, why you’re here. Home renovation loans require a minimum FICO score of 680. The higher your score, the lower your interest rate will be — just like your mortgage.
Here’s a breakdown from average to awesome scores:
- Average - 680 - 720
- Good - 720 - 760
- Very Good - 760 - 800
- Awesome - 800+
2. Your Combined Loan to Value Ratio (CLTV)
With the ability to borrow up to 90% of the post-renovation value of your home vs. its current value, RenoFi loans can boost your borrowing power up to 3x!! So your Combined Loan to Value Ratio takes the value of the RenoFi loan + your current outstanding mortgage balance and divides it by your post-renovation home value. CLTV just shows how much equity you will have post-renovation. The more equity, the lower the rate.
3. Your Loan Amount
For major renovation projects, if your loan amount goes beyond certain thresholds, some lenders will charge a slightly higher rate. So if your loan hits over $250K, you may see an increase. Borrowing $90K versus $80K for a smaller project really won’t affect your rate.
4. Where You’re Located
RenoFi partners with lenders all over the country, all of which have their own individual interest rate structures depending on their market, but the differences are slight. The great news is that no matter where the lender is located, Home Equity Loans in general offer the lowest rates you’ll find, aside from a first mortgage.
We can’t forget your personal preferences either. Some homeowners like the security of a fixed rate, while others prefer lower initial payments with an adjustable-rate loan. Or if a lower interest rate is more important to you than a lower monthly payment then choosing a 20-year loan versus a 15-year loan option will keep payments lower, but it will also mean you’re paying interest for longer.
Check out our awesome monthly payment calculator to see instantly how RenoFi loans increase the amount you can borrow and what those rates may look for you based on the factors we mentioned above. And for more smart tips and information on qualifying for a home loan to make your big renovation plans possible, contact RenoFi today.