Buying A Home With Bad
Credit
When it comes to buying a
home, having bad credit is not the end of the world. Your future doesn't have to be defined by
your past. Whether you have suffered
from a bankruptcy, foreclosure or some type of financial hardship that resulted
in late or missed payments, there are lenders who specialize in financing for
those with less-than-perfect credit. You
will likely have to produce a larger down payment and/or pay higher interest
rates than someone who has good credit, but the important thing to know is that
buying a home is an option for you.
Bankruptcy &
Foreclosure
If either a bankruptcy or
foreclosure is on your credit report, it could take some time before you can
qualify for a good interest rate on a mortgage.
FHA loans, which are especially desirable for those with past credit
problems and first-time home buyers, are backed by the government and offer a
low down payment and interest rate option for those who qualify. Although the notation remains for up to 10
years, individuals with a bankruptcy or foreclosure on their credit report may
qualify for an FHA loan after two years.
Some mortgage lenders may approve a loan sooner, but the interest rates
will be higher and the required down payment may be as much as 35 percent of
the purchase price of the home.
Cleaning Up Your Credit
Even if you have bad
credit, it's important to check your credit report from each of the three major
credit reporting agencies - TransUnion, Equifax and Experian - before applying
for a loan. If anything is inaccurate,
file a dispute with the reporting agency and request a correction. You can request a free copy of your credit
report every 12 months.
In addition to correcting
any inaccuracies on your credit report, it's important that you know what can
help or hurt your chances of obtaining a loan.
You can start improving your credit by avoiding the temptation to apply
for new credit right before submitting a mortgage application. Multiple inquiries will cause your FICO score
to drop, and lenders will rely on this information when deciding whether or not
to issue your loan and how to calculate your interest rates. With past credit problems, most lenders will
want to see that you have rebuilt your credit history with 1-3 major credit
cards and timely payments over a two-year period.
Money Matters
When it comes to obtaining
a home loan, a healthy bottom line will help the lender to see you as being
creditworthy. It's important that you
have sufficient income, along with the ability to prove steady employment for
at least one year (longer is better) preceding your loan application. Most lenders will request a copy of your tax
returns for the two most recent years, along with current pay stubs. If you have money for a down payment, this
will also work in your favor.
Creative Financing
In some cases, a
conventional mortgage loan may not be available no matter how hard you
try. Owner financing is one way that
individuals, who may not otherwise qualify for a traditional mortgage loan, can
purchase a home. This type of financing
is offered by the owner and may include interest rates comparable to other
loans, flexible down payment options and no credit check. Your Premier Beach Realty Agent can assist you in finding homes
that offer alternative financing options.
