You are ready to buy a home? You have spent countless numbers of hours on Zillow and have found the best neighborhood, the right square footage, and the right price. The one thing that is stopping you is your credit score. Having a poor credit score can make buying a home difficult. All is not lost, there are some lenders who will lend to buyers with bad credit. Although this may sound like great news, it does come with its list of challenges. For example, you may be required to pay a bigger down payment or have a high interest rate.
If you have credit issues but are still interested in purchasing a home then here are some tips for you:
- Know your credit score – Before doing anything make sure you know your credit score. It may not be as bad as you think. You can get a copy of your credit report by visiting AnnualCreditReport.com. Once you have gotten your report you can then begin to make a plan.
- Seek help – Contacting a housing counselor in your area is a great idea because they can help you with things such as understanding your credit report, walking you through the Homebuying process, and connecting you to resources that may be available to help. HUD.Gov is a great place to start looking for counselors in your area.
- Work on your credit – It may take some time to raise your credit score but it will be worth it. If your credit rating is under 620 then this is the best way for you to improve it and get a more affordable home loan.
- Budget – Create a budget so you can assess how much you can afford for a monthly mortgage payment. Pro tip: Use your budget to identify ways that you can cut cost. For example, you may be able to reduce your cable bill by opting for a lower priced package or switching to a streaming service. You can then take the savings and use that to pay towards your debt.
- Save up – Save some money to make a large down payment this can lower your monthly payment despite having a low credit score.
What types of loans can I apply for with bad credit?
There are two different loan types: Conventional and Government Backed Loans like FHA, VA, and USDA. The minimum credit score needed to get an FHA Loan is usually around a 580; however, if you can make a 10% down payment, you can probably get approved with a credit score between 500 – 579. Be advised that not all lenders will approve you, as some have higher credit score requirements. You can also look into getting a VA Loan if you are a veteran. The VA doesn’t set a minimum credit score, however, some lenders typically prefer working with borrowers who have at least a 660 credit score. The same is true for USDA Loans, which are available to some borrowers in rural and suburban areas; lenders tend to prefer borrowers with a credit score of 640 or higher.
Pro TIP: Avoid bad credit home loans that promise you that they will offer lower interest rates. Also avoid subprime mortgages as they are dangerous; they often come with prepayment penalties or balloon payments which can put you in a bad situation.
If you are ready to purchase your home and you need credit assistance feel free to contact us at (954) 686-7182.