A dream of buying a home can turn into a nightmare when the reality of the home buying process begins to take shape.
At the top of the list, make sure you have a good credit profile in order to qualify for a home purchase loan.
You also need to understand the true cost of the home other than the selling price.
This includes items such as property taxes, insurance, and maintenance.
Once you know that, you have an idea if you’re ready to take the next step.
What happens if you still want to buy a home but bad credit stands in your way? We have some tips on how to buy a home with bad credit.
Understand your credit score
Each lender has their own requirements regarding the range they are looking for when it comes to credit score.
Most look at your FICO score. FICO is an acronym for Fair Isaac Corporation, which was the first company to introduce a credit risk score.
FICO uses a formula to measure and determine your eligibility to receive credit.
Depends on a variety of factors including payment history, outstanding balances, age of credit, new credit and mixed credit.
If your FICO score is less than 580, your credit score is considered “poor” or “bad.”
A FICO score between 580 and 669 is considered “fair,” which means it’s below the average credit score for most US consumers.
FICO scores ranging from 670 to 799 are considered “good” and “very good.”
FICO scores of 800 and above are considered ‘exceptional’.
The higher your FICO credit score, the better the mortgage rate you can expect to get.
Bigger down payment
One option if you have a bad credit score is to save for a larger down payment.
The more money you put in, the less you will borrow.
This can help you get a lower interest rate and lower mortgage payments.
Since a larger down payment means you’re a less risky borrower, wait to apply for a mortgage until you’ve saved up a significant amount.
Ask your family for help
Let your family know that you are looking for a home and could use some financial help.
Your family may be able to help you with the down payment or closing costs or other related expenses.
If you have bad credit, you may need to co-sign to get approved for a loan.
You need to make sure you make your monthly payments because the co-signer will be responsible for paying your mortgage if you default.
Down Payment Assistance Program
Many first-time home buyer programs offer advance payment assistance.
There are several types including a mortgage payment grant which is a one-time payment assistance that does not have to be repaid.
Government loans offer low interest rates. Some allow home buyers not to put any money into the down payment.
There are also low-interest loans and deferred-payment loans, both of which need to be repaid.
rent to buy
TikTok and Instagram influencer Preston Seo, who teaches about financial freedom, has shared unique tips for his more than 2 million followers on TikTok.
Preston Seo of The Legacy Investing Show told The Sun: “It’s definitely hard to get approval for a mortgage these days, but if you find a good lender, have a good game plan, and execute, you can still definitely get approved even in Present-day financial climate.”
If you’re interested in purchasing a particular home or apartment, Seo suggests that you suggest the landlord rent the property with an option to purchase within three years.
The landlord can take a portion of the rent each month and credit it as a down payment.
Preston added: “Be patient. Credit repair may take some time.
“Just make your payments each month consistently and you’ll see your credit score increase.”
We explain how the mortgage rate goes up and how it will affect your finances.
Plus, here’s how to provide additional help to homeowners with mortgage payments.
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