How to Buy a Home with Bad Credit
As you’re considering purchasing a home, you may have some worries come into mind. These concerns may have to do with the fact that you have bad credit scores. Fortunately, it is possible to buy a home with bad credit; you may just need to pursue some additional channels and explore more ideas.
Analyze Your Credit Report
When you pull up your credit report and see a low score, you may immediately click away or close up the envelope. However, you must take the time to really go through your credit report and you will see why good credit matters. It is possible for this report to contain errors that are damaging your score. You may even discover that there are major mistakes on the report that are bringing your score down by hundreds of points. For example, the report might say that there is a judgment against you when that isn’t the case. You must have these errors resolved so that your credit score reflects your true financial situation.
Wait Some Time
You may feel a pressing desire to buy a house right now, but you may not have an actual current need for it. Be sure to take advantage of open houses, they can offer many insights to when, where, and price ranges. If you are willing to wait several months or a year longer, you could bring your credit score from bad into the fair category. Depending upon the exact number, you could potentially have a good credit score before you buy a home. Keep in mind that reaching this goal could involve making some major financial changes. Therefore, consider scheduling an appointment with a financial adviser to make a plan.
Lower Your Expectations
At this moment, you may dream of purchasing a house that you and your family can live in for generations to come. However, you may not be in the right financial situation to afford a prodigious property at the current time. Instead of aiming for a forever home, consider a small starter house. Also, you could consider a house in a less desirable neighborhood, which doesn’t necessary mean the community is dangerous. For example, if you aren’t planning to have children, moving into a town with schools that perform poorly is unlikely to hurt you. This decision can introduce you to houses that with bad credit scores, you are more likely to qualify for a less expensive house.
Consider Other Options
When it comes to purchasing a home, many people immediately think of a house, but what type of house is right for you? If you do not have the money or the right financial situation to qualify for a house, you can look into other possibilities. You could purchase a condo or a co-op instead of a house. These types of spaces still come with a high level of privacy, but you also generally do not need to pay as much or have as high of financial qualifications as you do for a house.
Hire the Right Real Estate Agent
You also don’t have to work with just any real estate agent. Since you are looking to purchase a home while you have low credit scores, you should hire an individual who specializes or has significant experience in this area. You may think that hiring an agent is a waste of money in a time when you are trying to save funds; however, this line of thinking is a mistake. Real estate agents can save you from costly errors that you might otherwise make, and they can steer you in the right direction for your financial situation.
Choose an FHA Loan
Looking into a Federal Housing Administration loan is a good idea when you have poor credit scores. These loans have a lower qualifying score than other types of loans. Also, you can generally put less money down. Now, even if you have poor credit scores, you might still have a decent down payment. Still though, these two issues do tend to occur together. The idea is that if you have extra cash, you would put it toward bettering your financial situation.
Offer a Generous Down Payment
Everyone has different financial situations. It is possible that your credit score is suffering from mistakes that you made in the fairly distant past. While you might not have been able to shed the effects of those actions yet, you may have been able to save up a decent amount of money in addition to paying your bills. When you’re applying for a home loan, the lenders do look at multiple financial factors. In the event that you can increase the amount of down payment that you’re planning to make, you may be able to offset at least some of the negative effects of having lower credit scores.
Increase Your Income
The lenders also need to make sure that you are able to afford the monthly mortgage payments, taxes and any other such fees. Low credit scores could be a warning sign to lenders that you lack the ability to pay your bills. If you add a low income onto this problem, you may find that qualifying for a mortgage becomes virtually impossible. Therefore, when you are starting to think about purchasing a home, see if you can take on an extra job to bring in more income. Of course, you could also start by asking your current boss if a raise is possible.
When you are trying to increase the amount of money that you have in order to better your chances of qualifying for home loans, you could look into borrowing money from a relative or friend. You may also want to see about borrowing money to pay off your credit card debt. If the amount of debt that you have is what’s holding you back, paying off some or all of it could help you to improve your chances in qualifying for a loan on the house that you want.
Buy with Someone
If you are trying to purchase a house alone, then the weight of the financial qualifications will entirely fall on you. Consider taking another approach and purchasing a house with someone. Maybe one of your siblings is thinking about moving out soon too, and you could get a house together. If you are thinking about marrying your current partner, now might be a time for the two of you to talk about moving in and owning a piece of property together.
As you’re exploring home loans, bad credit scores can seem to play a huge role in holding you back. While you may have find some roadblocks on the journey to home ownership, you do still have a number of options that you can explore to achieve your ultimate dream.