Buying a Home with Bad Credit

Dated: May 6 2021

Views: 181

Bad credit can be disheartening, and many believe that bad credit can disqualify you from buying a house. While it can be difficult, it is not impossible to buy a home with bad credit. Below I have put together tips on what steps you can take to boost your prospects of buying a home. If you’re not in the position to buy today, preparing for what could be available in the future is a strategy that will pay off in the long run.

First, check your credit score. 

Checking your credit score is easy to do. Each of the nationwide credit reporting companies, Equifax, Experian, and TransUnion, are all required to provide you with a free copy of your credit report, at your request, once every 12 months.

Along with this, check for errors in your credit report. If you find an error, the best way to attempt a correction is through a dispute letter. Dispute letters allow you to formally request a fix by the reporting agency. Though it may take a little time to get the errors removed, cleaning up these mistakes can have a direct, as well as favorable, effect on your credit score, helping you secure lower interest rates and better terms.

Larger Down Payment 

Down payment assistance is complicated to get with a bad credit score. You’re going to have to help your odds of pre-approval by proving you have 10% down to put on your home. That 10% is beneficial if your credit score is sub-550. Above 550, you might be able to land an FHA loan with only 3.5% in equity. 

Need help saving for a down payment? Here are some tips for conquering saving for a down payment:

  • Find out where your money goes and make adjustments on what are “needs” versus “wants.”
  • Get specific about how much you need to save, so you have a visible goal to shoot for.
  • Determine the big moves you can make to change your financial picture.
  • Set up a separate savings account, so your down payment is out-of-sight and out-of-mind.
  • Pretend you already have a house payment by paying that amount to yourself each month.

Make Moves to Rebuild Your Credit

You don’t have to be perfect to improve your access to better mortgage terms. First, pay down your credit card balances. Then identify any outstanding debts or collections that you can manage to get cleared through full payment or a negotiated settlement. If you can push your rating above 620, you’ll not only get closer to better terms, but generally, you’ll experience less scrutiny during the approval process. Focus on doing what you can to bring your debt-to-income ratio below 45%. 

Don’t Force It

Suppose you’ve experienced a bankruptcy, foreclosure, or short sale scenario. In that case, it may not be possible for you to secure a mortgage for at least three years (sometimes two, depending on the situation). Use this time to work on the tips above!

If you’d like to begin hunting for your next home, I am happy to help guide you. Or, if you need a referral to a reputable mortgage professional, get in touch! I have a network of trusted folks I work with every year: 928-710-9148

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