Poor Credit Score, Tired of Renting, What Do I Do?
Bad credit can seriously put a damper on your dreams of owning a home. It not only raises a red flag each time you approach a lender, it also makes you a generally undesirable borrower. However, the fact remains that a large number of the population suffer from a bad credit history and are thus unlikely to get approval for a home loan, much less get a loan at good interest rates. A house is still the costliest purchase any individual will usually make in his or her lifetime and if you are ready to settle down and are tired of renting, you are probably wondering if you could still get a good deal on real estate given your credit history. So can you?
Tired of Renting? How Your Credit Score Can Help (or Not)
According to Credit.com, over 60 million people have sub-prime credit scores. This group is likely to have trouble getting home loans at good rates. If you belong to this group, do not think that all hope is lost. You can still own a home but unlike other people with higher credit scores, you will have to work harder and take different steps to get what you want.
A key first step is to know exactly what your potential creditors will be looking at for your home buyer credit score. Ask for a copy of your credit score from the three credit reporting agencies and check all entries for accuracy. Verify that each and every item that got entered into your file is true and correct. If there are errors, have these corrected immediately so your score can be adjusted accordingly. Some people often benefit from adjustments such as this, getting their score a few points higher. At this time, you will need all the additional points you can get, so do not skip this step if you are tired of renting but are struggling against a bad credit score.
Once your credit score has been adjusted, start taking careful stock of your finances to determine what you can offer the lender as a borrower. In general, lenders will take a look at three major areas of your finances. These are: 1) your credit score; 2) your current debt-to-income ratio, and 3) your down payment. The bank or lender will use your credit score to evaluate your desirability and capability as a borrower. It is, after all, an indicator of your spending and paying habits. The lending institution will also consider your debt-to-income ratio as a way to evaluate if you can afford the payments on the loan premium based on your income and the current debts you may have. The creditor will also make a decision based partly on the amount of down payment you can afford. The higher down payment you can put down, the more serious you are about making an investment and the less likely to renege on your mortgage agreement.
Be ready with a good explanation regarding issues with your credit as well. If you have bad credit and a few negative items on your report, chances are the lender will be asking you to explain reasons why these problems happened. Keep in mind, however, that reasons are not excuses and should be valid enough to allow the lender to understand your past financial situation. If, for example, you had a health problem that required expensive treatment, lost money on an investment or underwent a divorce process, your lender will have a better picture about your financial state. Make sure to cover areas with major issues such as bankruptcies and foreclosures. If you have defaulted on loans before, you should be able to provide satisfactory assurance that you will not have that problem again.
Options If You Are Tired of Renting But Have Bad Credit
There are other options you can look into if you want to own a home you can afford. Consider, for example, buying a HUD (Housing and Urban Development) home. Government foreclosures are often sold at lower prices and even those who have bad credit scores could qualify. You get to enjoy lower interest rates compared to those offered by traditional mortgage lenders. Depending on your profession, you could even qualify for a maximum of 50% discount off the price of the home. You do need to be picky about your purchase, though since HUD homes are often available "as is".
Another option is getting a co-signer for your loan. Many lenders do not allow this but those who do can help you get qualified for a mortgage amount you will probably not get if you were applying without someone to guarantee for you. If you can get a co-signer with a good credit score and stable finances, this will go a long way in helping you reach your goal of finally owning your own home.
Finally, there's an option none of us want to hear about: patience. Improving or repairing credit takes time and hard work. But it's not impossible to repair bad credit. You may need to bite the bullet and simply rent for a time while you pay off your debt, improve your credit and get ready to buy a home. You can start with the free eBook "Get Mortgage-Ready Credit" at the button below. It's full of credit tips and information to get you out of that rental.
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