If you have bad credit and you’re thinking about buying a house, then you’re not alone. The fact is, many people in today’s world aren’t fortunate enough to have good credit, and it can be a daunting experience trying to buy a home. However, there are steps you can take to start rebuilding your credit and make your mortgage process easier.
Improve your credit before buying a home
If you’re thinking about buying a home, one of the most important steps to take is to improve your credit. This is because lenders consider your credit score when determining your ability to pay off the mortgage. When you have a good score, you have a better chance of being approved for a mortgage at a low rate.
Credit scores are based on your payment history. Keeping your debt level low and paying your bills on time will help you to improve your credit. The length of your credit history is also important. A longer credit history will show a lender that you have more experience managing credit accounts.
While you’re shopping for a home, you should avoid using credit cards or taking out new loans. These can negatively affect your credit score for a short period of time.
You should also check your credit report to make sure there are no errors. It’s also a good idea to dispute any errors.
Save 20% of the purchase price
How to save the best 20% of the purchase price of a home is no easy feat. If you want to find out how to get it you will need to take a hard look at your credit score. Luckily, the housing market has seen a resurgence and if you have the foresight to plan ahead, you will be pleasantly surprised by the results. A down payment of the order of 20 percent of the purchase price is not uncommon. Fortunately, there are numerous lending sources and incentives to help you land your dream home. The first step is to do your research and scour the web for a lender that can meet your specific needs.
Consider a co-signer
When you are looking for a loan to purchase a home, you may want to consider a co-signer. This can help you qualify for better terms on your loan and make your down payment lower. But, keep in mind that it comes with a lot of responsibility.
A co-signer can be anyone who agrees to sign on your behalf. They can be a friend or family member. And, while they are not responsible for your mortgage payments, they will be added to your credit history and will be held responsible if the primary borrower defaults on his or her loan.
There are many types of loans in which you can use a co-signer. The most common are FHA loans and conventional loans. You can also add a co-signer to auto loans, student loans, and personal loans.
Having a co-signer can also be a boon for a responsible borrower. However, having a co-signer on your loan can also come with a number of risks.
Take out a mortgage
Taking out a mortgage to get a house with bad credit can be a difficult process. You may have to pay a high interest rate or a large down payment, or you might be rejected. However, it is possible to buy a home with poor credit, and even rebuild your credit in time.
The first step to take to buy a house with bad credit is to get a mortgage pre-approval. This will give you a better idea of your borrowing options and allow you to see your path towards a higher credit score.
There are different loan programs designed to help borrowers with bad credit. These include government-sponsored loans. Fannie Mae and Freddie Mac have homebuyer programs that are designed for borrowers with poor credit. If you do not qualify for one of these programs, there are still many lenders that offer other types of loan.
It can be a good idea to work with a mortgage consultant to find the best price. Your consultant will also work with you to determine how much you can afford to pay.