How to buy a house even if you have bad credit
The decision to purchase a house is an important life choice that most us will make at some point in our lives. Unfortunately for a lot of folks this life long dream won’t come easy. Life circumstances such as student loans, credit card debt, and even the occasional missed payment can substantially lower credit score, significantly reducing chances of securing a mortgage loan. Although, purchasing a home with low or bad credit won’t be easy, all hope is not lost. We have compiled tips below on how to buy a house even if you have bad credit.
- Evaluate Your Situation. If you have bad credit, work to fix it. Thoroughly check your credit report from all 3 major credit bureaus. Even if you don’t have delinquent accounts, there could still be something you’re unaware of that’s hurting your credit score. If there are derogatory marks on your credit report based on information that is false you can dispute it. Credit agencies are required by law to investigate your complaint within 30 days. If successful, removing them can substantially boost your credit score.
- If you have low credit score then it will be necessary for you to have a bigger down payment. When you make a large down payment this shows lenders that you are able to handle the loan despite your low credit score. Be prepared to put down at least 20% of the cost of the house. Keep in mind you will have closing costs as well.
- Research federal mortgage loans. Work with lenders that specialize in The Federal Housing Administration and the Veteran’s Administration loans. They offer low down payments and do not require a large down payment. You may be able to get approved even with a credit score as low as 580 as long as you make a down payment of at least 3.5%. Work with a realtor that will help you understand both advantages and disadvantages of an FHA loan.
- Another great way of buying a property with low credit score is by getting a loan from someone you may already know. Getting a loan through private moneylenders can be easier than any of the steps on this list. This individual can be a family member, or a friend you might know that is willing to lend you the money to purchase this property and in return you would pay for the home with a loan based on the terms accepted by both parties.
- Work with a landlord that may offer you to lease the property with an option to buy. In a lease-option, the landlord and tenant make an agreement that at the end of a specified period, the tenant has the option to now purchase the property.
- Seller financing allows the buyer to make direct payments to the seller until the property is paid off. In a seller-financing situation, the seller lends the buyer the money for the purchase under a contracted interest rate, repayment schedule and consequences of default.
- Another possible option for purchasing a house with low credit score is by assuming an existing mortgage. By assuming an existing mortgage, the buyer takes on the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage instead of obtaining a brand-new mortgage.