Buying a house is one of the hardest milestones to achieve within an individual’s life; for most people, buying a home, paying for college, and purchasing an automobile are the most significant purchases of their lives. Having a low credit score only makes it even harder, because chances are, you will need a mortgage loan at some point while purchasing a house.
It may be difficult buying a house with bad credit, but it is not impossible. You can still buy a home while still having bad credit and work to build your credit score from there.
Why it is challenging to buy a house with bad credit
Most people depend on loans from financial institutions to manage to buy a house. The financial assistance may also come in the form of a mortgage. Every financial institution will look at your credit score to determine whether you are an investment risk or not. When your credit score is low, the term you as an investment risk, so chances are that you will not get the loan. According to UpNest, It is almost impossible to buy a house without financial assistance; paying for the whole amount at a go can be challenging.
If your credit score is less than 580, then mortgage lenders and other financial institutions will see you as a credit risk. Having a bad credit score might also mean that you will need to pay more money upfront, which is not favorable when buying a home. The closing costs associated with low credit costs are also high, as compared to individuals with a higher credit score.
You already know that it will be challenging to buy a house with a bad credit score, so what is the way forward? Here are tips to get you home with a bad credit score.
Review Your Credit Score
The first thing you need to do is review your credit score. Make sure to check out in detail what’s gone wrong so that you can know how to fix it as well as what NOT to do in the future. This might be difficult, but it is about facing reality and learning from your mistakes. No matter how bad it might seem, it is the first step to start moving forward.
Apply for a Federal Housing Administration (FHA) loan
For a person with a low credit score, the FHA loan is the best shot that you may have at purchasing a house. The United States federal housing administration loan has no minimum credit score. The loan also offers low down payment options for the buyer. So your credit score may be at 300 or lower, but that does not mean that you have no chance of buying a house. The FHA loan will give you the best deal for a person with a low credit score.
Find a realtor
There are so many things that a realtor knows that you will never find on the internet. So if you have a low credit score, find a realtor, they will advise you on the way forward. You might be surprised that you are more than qualified to buy a home.
Having a bad credit score is definitely a downside, but with a professional realtor, you will know your options clearly and therefore, you will know what to do next. Realtors have been in various situations, working for different clients and they can tell you objectively what you can do and cannot do if you want to buy a home.
Save up for down payment
When you have a low credit score, make sure that you save a larger down payment. When the down payment is high, you will attract more lenders, even with a low credit score. The lenders will see you as less of investment risk.
This is an important thing to do because, with your credit score already low, you need to go an extra step to show that you are trustworthy. With a higher down payment, you will show people that you are willing to invest in a new house, despite what’s happening on the credit score reports. Furthermore, when you invest more money from the start, it shows that you will most likely not walk away from it and that you mean business.
Once that trust is reset, buying a new home shouldn’t be too much of a problem.
Go for lower-priced homes
When the credit score is low, it means that financial institutions will term you as a bad investment. However, when you opt for lower-priced houses, the level of risk that the mortgage lenders have to make will decline, so the lower the price of the home, the lower the risk on investment, and the higher the chance of getting the mortgage loan.
At that point, high-end home are out of your reach and you will have to satisfy yourself with what’s available. Also, you don’t want to put an extra burden on your back, besides the additional one you carry.
In a nutshell
Having a bad credit score is definitely a nuisance, but it is not the end of the world. This shouldn’t stop you from proceeding and eventually buying a new home. However, you should know that the procedure is a bit different for the people with lower credit scores and their options are more limited.
Do not allow bad credit scores to discourage you from buying a house. Just follow the tips mentioned above, and you will be good to own a home.