Buying a house is very expensive and usually is not something that can be done on a single transaction. Many people would need to apply for loans in order to afford things such as a down payment on the house. One also has to be in a position to pay all the installments in full, usually on a monthly basis until the mortgage has been settled in full.
The commonly asked question is “Can you buy a house with bad credit” Well the answer is, buying a house with a bad credit score is something very difficult to do but not completely impossible. There are other alternatives one can explore in order to improve their credit score to buy a house despite their bad credit score.
How to buy a house with bad credit
- Find alternative money lenders
Banks are most definitely going to turn down your application if you have a bad credit score. This is because they operate under strict policies that have a set minimum credit score. However, there are other entities that do not really require a good credit score. These are Flexible Money Lenders that handle government-insured loans (FHA loans). These entities can set their own minimum credit score and their peg is usually low enough to accommodatepeople with a very low credit score.
The easiest way to find one is through the internet. You fill in an application and then you will be presented with partner lenders that match your criteria. Once you accept the offer you will then be redirected to the lender’s site where you will receive the loan agreement. This will be followed by a property inspection. If the property does not meet the required standard, you will be denied the loan.
The house acts as collateral, so lenders will need to do an appraisal to ensure that the property equals to or exceeds the amount that was borrowed.
- Work on your credit score.
This is something you would need to work on about a year or two prior to making your application. For example, if you were blacklisted by some companies, you might want to start with clearing that. This could take a few months as you would need to settle all the debts with interest. You need to focus more on items that drag down your credit score the most.
Moving forward you will then have to improve your payment habits. All the payments on your accounts will have to be made on time or at least not more than thirty days later. This will significantly improve your credit score. Since late payments reflect on your credit report for about seven to ten years, waiting for the delinquency to age off would be a great solution.
You would also want to work on your credit cards. It would be better to slow down on their expenditure. This is because amounts owed are also a huge factor in your credit score. It would help to pay off all debts, especially on credit cards that are almost maxed out.
3.Saving towards of the costs
Being able to pay for things such as the down payment and the closing costs would go a long way into helping you secure a loan.
A down payment of at least 20% of the purchase price is most preferred, anything less than that may create a need to pay private mortgage insurance.
There are some government-insured loans that do not require a down payment. However, like the banks these also have their own policies that have qualification restrictions. For instance, some of these institutions may require you to have been and the US military and some may. In order to be eligible for some of these loans, you have to be based in an eligible rural area. Some of them require that the property be your primary residence.
Finding someone to co-sign could also better your chances of qualifying for a mortgage if you have bad credit. Making somebody co-sign basically means they will cover all the costs in the event that you are unable to do so. However, if you go foreclosure it would badly affect the person’s credit. This is why it is important to explain the process to the person before you make them co-sign.
If you do not have enough cash to make a down payment, you can liquidate some of your assets. In doing this you need to make sure you liquidate assets that will not result in a loss. You could check with your financial advisors if you can liquidate assets such as your retirement account.
- Get Help
You can always get help from people around you if you are short on cash. Getting help from friends and family would be better for your credit as it may be easier to pay them back and it will not affect your credit as would other loans. Friends and family would normally understand the situation and would give more time to pay them back without interest.
Getting friends or family to co-sign would also be a better option than to get somebody you are not that much acquainted with.
Mortgages are usually very large loans; balances are usually six-digit and are usually paid over a period of 15 to 30 years. As a result, lenders are justifiably concerned skeptical about giving money to people who have not proven to be creditworthy. However, this does not mean you cannot get a loan if your credit score is not perfect. With the right amount of work, healthy savings and a reasonable down payment, you can definitely make your dream come true.
It is, however, advisable to get your finances in order before considering getting a house as it may result in more debts in the long run. Debts you may not be able to cover.