If you are looking to buy a home but have bad credit, you have many options. You can use a government-backed loan, work on improving your credit, or work with a co-purchaser. Before you go shopping for a new home, take the time to understand your financial situation and choose the best mortgage option.
The first step to purchasing a home with bad credit is to start building your credit. Lenders will look at your entire financial portfolio to determine whether or not you can qualify for a loan. Good credit scores can lead to lower interest rates and more offers. However, low credit score applicants must prove they have the means to make the mortgage payments. This can be accomplished by making on-time payments for at least a year.
Another way to improve your credit is to pay off your current debt. You will also want to avoid opening any new credit cards. Also, be sure to compare the interest rates on your current and future loans. While you are working to repair your credit, consider reducing your debt load and lowering your DTI. A lower DTI means a bigger house is within your price range.
For homeowners with low credit scores, you can get help from the United States Department of Agriculture (USDA). Mortgage assistance programs like the Home Possible program allow borrowers without credit scores to apply. In addition, the FHA also has mortgage programs for those with less than stellar credit. These loans require a down payment of up to 3 percent.
Another option for people with low credit is to apply for a VA loan. VA loans have low or no down payment requirements, and they have competitive interest rates. They are also backed by the federal government, which may reassure lenders. Regardless of the type of loan you choose, you will need to have a good credit score, so start building yours by taking a free course on credit.
A last tip for buying a house with bad credit is to keep your mortgage payments low. You can reduce your monthly payments by putting an extra twenty to thirty percent down on the purchase. Not only will this help you qualify for the loan, but you will also be saving money. Getting a lower interest rate means more of your payment goes to the house, not to the lender.
Buying a house with bad credit can be daunting, but it can be done. With the right steps and some time, you can be on your way to home ownership. Take the time to shop around and compare the rates and terms on your current and potential loans before you make any decisions. By following the tips above, you can find the perfect loan for your needs. And when the time comes, you will be able to enjoy homeownership.
Finally, be sure to keep your credit card bills and other debts in check. Having multiple credit cards can raise your DTI and lower your chances of qualifying for a home loan. Paying off your debts will help you lower your overall expenses, and a lower DTI will give you more money to put towards the purchase of your dream home.