Can I Buy A Home With Bad Credit?
According to statistics, about 30% of Americans have bad credit, and plenty of others do not have credit at all. Unfortunately, bad credit can hinder many plans, including getting a loan or buying a house. Many people dream of home ownership. But what happens when you have set your eyes on condo near the beach but your credit is poor? Can you still own a home? The good news is that it is possible. Below are some tips to help your home ownership journey even when your credit is not so good.
Mortgage lenders are not the same. Some have strict terms, and others are easy-going regarding rules. Look for credit unions, online lenders, and other lenders in the game to see who can give you favorable rates.
Analyze Your Housing Budget
How much can you comfortably afford? Ask yourself this question and answer it honestly. You will need to manage those housing costs without feeling strained. And it is not just the mortgage that you should be concerned about. You will need to plan for other expenses such as insurance, taxes, home maintenance costs, and maybe even homeowner’s association fees. Then there are also closing fees that you must pay and, eventually, moving expenses. All these costs mentioned are significant and will have to be paid for, one way or another. Understand all of them to plan your finances.
Be Prepared For A Higher Mortgage Interest
With bad credit, you’re a risky borrower. Lenders will consider this. You’re likely to get higher interest rates to compensate for risk. The good news is that you may start with high-interest rates, but it does not mean you are locked in those rates until you repay the loan. You can refinance your mortgage later on. This will earn you lower interest.
Save Up For A Higher Down Payment
As you are already aware, you will need to save a down payment when buying a house. But when your credit is not so good, try and save a significant down payment. This will make it easier to qualify for the loan. Also, a sizeable down payment means you will not be asking for too much money; hence it is easy to qualify for a loan. Ideally, start saving up from 20% of the home’s price.
Pay Off Other Debts
Besides your credit score, lenders also look at your debt-to-income ratio. This ratio compares your monthly income to your monthly debt payments. A lender will want to know how much debt you have and how much of your income is dedicated to expenses. If you have a lot of loans, try and reduce them to lower your DTI.
Work On Your Credit
Do not give up if you cannot qualify for a home loan initially. You can still achieve your dream of home ownership, but it may take longer than you expected. First, assess your credit report and see what is affecting your credit score, then take measures to improve it. Improving your credit score will eventually make you creditworthy, making it easy to get a loan.
As you can see, home ownership is still possible even with bad credit. You just need to be tactical about the steps you take to come off as creditworthy to lenders.