Buying a House with Bad Credit – 7 Things to Know

Buying a House with Bad Credit – 7 Things to Know

You may think that buying a house with bad credit is impossible — but that is not the case. Yes, you may have to pay a higher interest rate and come up with a larger down payment, but it is doable.

Here are the 7 things to know about buying a home with bad credit:

1.Know How Much You Can Afford
2.Know Your Credit Score
3.Check Your Credit Report for Errors
4.Apply for an FHA Loan
5.Accept That You Will Pay a Higher Interest Rate
6.Set Aside Money for a Down Payment
7.Rebuild Your Credit

Step 1: Know I-tow Much You Can Afford

Before applying for bad credit home loans, we recommend speaking with your accountant or a financial planner to determine how much you can afford to spend on your monthly mortgage. Your down payment will figure in to determine the total value of the house you can afford to purchase. Before buying a house with bad credit, you need to know where you stand. You do not want to start applying for bad credit mortgage loans if you will only be turned down because you are asking far too much.

Step 2: Know Your Credit Score

Credit scores can be as low as 300 or as high as 850. A credit score of over 740 is considered good credit. Having an FHA credit score of under 64o may malke it more difficult to get a mortgage. It is not impossible to secure 500 credit score home loans, but it will take some work. If you know your credit score in advance, you can speak with numerous mortgage brokers to determine who may legitimately be able to help you. Check all three credit reporting agencies – Experian, Equifax, and TransUnion.

Step 3: Check Your Credit Report for Errors

If your credit score contains errors, that could lower your rating. Examine your credit report carefully. If you find errors, dispute them with the credit bureaus. Even a slight change can make a significant difference in your interest rate.

Step 4: Apply for an FHA Loan

The Federal Housing Administration does offer home loans for bad credit homebuyers. You may only need a down payment of 3.5% of the home’s purchase price if you have an FHA loan credit score of 580 or higher. You may be able to get a mortgage with a 500 credit score, just expect to come up with a higher down payment. The major downside of getting an FHA loan is that you must maintain private mortgage insurance throughout the course of your loan.

Step 5: Accept That You Will Pay a Higher Interest Rate

Buying a house with bad credit typically comes with a higher interest rate. Lenders require a higher interest rate to help recoup the money they are lending you for the home. Borrowers with low credit scores have histories of late payments or missing payments. The higher rate is a form of protection for the lender.

Step 6: Set Aside Money for a Down Payment

Although 3% or less is normal for a down payment these days, if you are looking for a bad credit mortgage, expect to come up with more money. Lenders look more favorably on buyers who are willing to invest more of their money upfront in their homes. A larger down payment can turn a rejection into an approval. The lender knows you are less likely to walk out on your mortgage if you have a significant amount of money invested in your home. Putting 20% down will significantly increase your chances of getting a home loan for bad credit.

Step 7: Rebuild Your Credit

If you have time before looking to buy a home, or if you have been turned down, use this opportunity to rebuild your credit. Pay your bills on time. Try not to carry over balances on your credit cards. Keep credit card debt as low as possible. The less debt you have, the better your FICO score will be.

We hope this information on how to buy a home with bad credit is helpful. Remember, the team at Great Florida Homes is here to provide the answers to your questions, as well as help you find the home you desire. Buying a house with bad credit is not impossible. We can help. Contact us at (954) 695-SOLD.