When you have terrible credit, buying a home can feel like a pipe dream. However, there are some things you can do to improve your credit before you begin shopping. This will increase your odds of getting a loan, and will make you less of a risk for lenders.
If you want to buy a home, the first step is to get a down payment. Most lenders require a down payment of at least 5% of the purchase price. The more you put down, the lower your mortgage payments will be. If you are considering an FHA loan, you may be able to qualify for a down payment of only 10%. However, you will have to meet other requirements.
While you are saving for your down payment, you should also save for closing costs. It is a good idea to make a goal of putting 20% down on your house. Doing this will allow you to avoid paying PMI (private mortgage insurance).
In addition to having a down payment and saving for closing costs, there are several other things you can do to increase your chances of a successful home purchase. One of the best ways to do this is to pay off debt, and to keep your DTI number low. These are the two most important things you can do to boost your credit score and increase your chances of purchasing a home.
The best thing to do when you are buying a house with terrible credit is to do your homework. There are plenty of free resources available to help you get on the right track. You can use a tool such as Rocket Account to see your credit standing.
Another great way to increase your chances of a successful loan is to consider a co-signer. A co-signer will take on some of the financial risk of you buying a home. Whether your co-signer is a family member or a friend, they will be a valuable asset to your lender. Lenders will look at the income, assets and credit of the co-signer along with yours.
Finally, you should try to find the best interest rate on your mortgage. Interest is typically a major factor in the process, and you don’t want to have to spend thousands of dollars on interest over the life of your loan. Also, you don’t want to end up with a house that you can’t afford. Take a look at your net monthly income before you start shopping, and do some research into your monthly expenses.
There are many things you can do to increase your chances of buying a house with bad credit, and there are many free resources you can use to learn how. By combining a bit of planning with a lot of luck, you can have the best chances of acquiring a mortgage and purchasing a home of your own. Remember to take the time to research the appropriate steps and to invest the time it takes to succeed.