How to purchase a home with bad credit? Many people are asking this sensitive question with the recession in full swing. Honestly, it is possible for you to buy a house with bad credit, although, it is no longer as easy as it was a couple of years ago. What is obtainable these days is the subprime mortgage offers, which the mortgage lenders are practically throwing at everyone.
You will however agree with me that it is no longer easy getting a house, if you have poor credit due to the subprime housing crash. However, it is not impossible.
First and foremost, look at your credit history. It will be very tough to achieve your aim if you have a terrible credit history. It is possible you already have bad credit. However, it has various levels. Assuming your credit is borderline bad, the bank may adopt alternative factors like your income, job security, assets and still go ahead to give you a mortgage. However, with terrible credit, it will be very tough to scale through.
You are advised to order your credit report from all the three major credit agencies to enable you know where you belong to. This report is so important to your potential lenders. Critically examine your credit report and ensure that it is free from inconsistencies.
Below are proven tips to position yourself and your finances to increase chances of securing a mortgage loan.
🏘What is the Value of my Home?
🏬Save a large down payment
As a borrower, you need to boost your credit score and credibility. Experts suggest a credit score of at least 580 to obtain adequate financing to purchase a home. If your credit score is below this value, a larger down payment is not an option but a necessity. Intending buyers with a higher score could save more money upfront to compensate for a low score.
Remember that your large down payment indicate to your lender that you are able to shoulder the loan, irrespective of your credit history. Besides, it signals them that you are capable of increasing your equity in the home upfront. The bottom line here is that the worse your credit score, the higher your down payment, so that you may find it easy convincing any mortgage lender for a mortgage.
🏦Obtain an FHA loan
With a poor credit score, applying for an FHA loan will likely be your best bet because it will be backed by the Federal Housing Administration.
The procedure and guidelines for FHA loans seem a bit lenient when compared to other loans. The Department of Housing and Urban Development which oversees FHA loans stipulates that an individual can qualify and be approved for these loans with a low credit score which is as low as 580 in addition to at least 3.5% down payment.
In contrast, conventional loans require a minimum score, ranging from 620 to 640.
🏥Emphasize some facts to your lender
Automated system is utilized by many lenders to determine who is qualified to obtain a mortgage loan. However, if the system finds you ineligible, you might still qualify for a loan. All you need to do is to manually underwrite, setting aside your low credit score and convince the lender that you are financially stable and capable in other ways. For instance, you can prove that you have been consistent with your rent payment for over a year.
You may even convince them that you have sufficient cash reserves to sustain you up to a year. Consideration could always be given to you when it has been proven that you have low debt payment despite your high income.
Be prepared to explain the reasons behind your low credit score. A huge customer debt in default can portray you as an irresponsible person and use of credit.
🏥Try obtaining a private mortgage
You may be of opinion that only large financial institutions are guaranteed to give out loans. However, there are alternative means of getting a loan despite your bad credit. An instance of this is a private mortgage which can come from anyone who has the cash at hand to finance you, either full payment or upfront. A private mortgage can be a family member, friend or even a private lender. Based on the terms and conditions that may apply, you then make payment for the home. Although, this type of loan has some downsides. It will however boost your credit score.
Bad credit does not rule out the possibility of you becoming a homeowner once you have an ambition towards it. Remember that you could still get a mortgage in spite of your low credit score. Don’t lose hope. Be determined and persevere. Your dream of getting a mortgage and own a house will ultimately come to pass.
Ultimately if you are shopping for a mortgage loan for the first time, sit down and figure out what you want and how much you can afford and then shop for your loan accordingly. A good mortgage broker or mortgage banker can help steer you in the right direction of all the different programs and options out there. Still, you will be better off in the long run if you know what you want and what you can afford. For more information on How to purchase a home with bad credit, or you need assistance in acquiring a mortgage loan, contact RL Real Estate at 601-212-8431 or at firstname.lastname@example.org. Regan Laughlin and her team of real estate experts would be more than happy to serve you.