It is no surprise that there are many advantages to buying land as compared to buying a property. But one thing- the biggest hurdle- that comes in the way of investing in land is your credit score.
A credit score has a huge impact on your mortgage which affects the approval or denial of your application. This reflects your ability to responsibly repay the loan to lenders in a timely manner.
As such, it acts as a face to your financial history, which lenders use to assess whether to lend you a land contract or not.
Thus, achieving a good credit score is one of the crucial things you can do before searching for land for sale in the USA. The higher your credit score, the higher the likelihood of you obtaining a land contract at a favorable interest rate.
The benefits of a good credit score for a land contract are:
- A high credit score proves your credibility as a borrower in front of lenders. Thus, if you have a high credit score you are rewarded with a land contract at a lower interest rate.
- A credit score also decides the loan amount you are eligible for. This implies you will qualify for a higher loan amount with a higher credit score.
- A good credit score is important as it affects your private mortgage insurance premium as well. If your credit score is not good, you may have to spend more on PMI premiums, and thus increase monthly payments.
- A good credit score can also affect the amount of down payment required for your land contract. If your credit score is good enough, you will have to pay less upfront amount.
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What Is a Good Credit Score for Land Contract?
A credit score is a three-digit number, typically ranging from 300 to 900, assigned to you depending on your creditworthiness. It shows banks and lenders your potential to pay back loans within the given timeline.
Most investors cannot make lump-sum land investments and hence they need a loan to meet their financial needs. Lenders use this credit score to track a borrower’s history to determine whether to accept or decline his mortgage application.
A credit score is nothing but a record showing how you have handled your previous loans. It is based on credit history including the number of accounts operational, repayment record, debt level, and other factors.
Moreover, for whatever reason you want to buy property using a land contract, your expected average credit score should be around 700. A good credit score is 800 or higher, while a score below 600 is considered bad.
5 Ways to Improve Credit Score for Land Contract
If your credit score is not that great and needs some work, don’t worry. Luckily, you have options to improve it.
You can follow the steps given below to improve your credit score for buying land.
Clear Bills On Time
Your past payment records are an important part of your current credit score. Your credit report includes the time and date when you missed your bills. Hence it is always necessary to pay the bills on time. Make it a habit to clear your bills on time, either on or before the due date.
Although you can’t do anything about your past late payments, you can make consistent timely payments a part of your portfolio.
Maintain Credit Balances As Low As Possible
Nowadays, getting a credit card has become easier, but if your credit balance exceeds the credit limit, it can affect your credit score. Therefore, it is advisable to maintain your credit balance as low as possible.
Ideally, the credit balance should be 50% or less of your credit limit. Additionally, you should not open a new credit account unless absolutely necessary.
Clear Off The Debt
Excessive outstanding debts tend to lower your credit score. Therefore, to improve your credit score, pay off your existing debt.
This will not immediately raise your credit score but will prevent any negative information from appearing in your credit report.
Open New Accounts Responsibly
If you have had difficulty dealing with your credit score till now, then you can work on improving your credit by opening new accounts responsibly. If you happen to open an account make sure to keep it paid within the given time limits.
While searching multiple lenders for the best land contract will not affect your credit score, applying for a credit card with multiple lenders will affect your credit score.
Patience is the Key
You cannot improve your credit score overnight. It takes time and may take around 5-6 months to reflect improvements in your credit report.
If you are planning to buy land using a land contract, start working on the aforementioned suggestions. So, by the time you sign a land contract, your credit score will be high enough to get you the land contract of your interest.
Final Words
With discipline and better money management, you can raise your credit score to secure low-interest loans.
As an informed investor, it is important that you know what is on your credit report.
If you do not have accurate information about your credit score, the entire land purchase process can be troublesome.
Gladly, at APXN Property, our experienced real estate experts can help you with the right guidance on land purchase. Contact us online to make the most of your land purchase or call 702.710.4466 to speak to our experts today!
