Buying a home is not easy at the best of times; buying a home with bad credit is even more difficult. Luckily, the following tips will help you buy your next home even if your credit rating is subpar.
Clear Errors on Your Report
One of the first things should be to check your credit score for errors and clear them before applying for home loans. This is important because many credit ratings have errors that can be cleared to improve the rating somewhat. Even though small errors may not make a huge difference for those with stellar ratings, even the tiniest errors will be a big deal to you if your credit score is dismal.
Make a Huge Down Payment
You won't qualify for a huge mortgage loan if you have bad credit, so you should prepare a sizable down payment. The mortgage company will want a big down payment from you to help them secure their investment (the money they are loaning you). Therefore, it makes sense to begin home searching only after you have saved a good percentage of your home purchase price.
Look For Bad-Credit Home Loans
There are lenders specifically out to work with people like you – those with bad credit. You will have an easier time convincing such lenders to give you a mortgage loan than you are likely to have with traditional lenders. The Federal Housing Administration (FHA) is one such lender, but there are others.
Be Prepared for High Interest Rates
The fact that you have bad credit means, at least in the eyes of lenders, that you are not very reliable when it comes to loan repayments. In fact, that is the very definition of a bad credit score. Therefore, the lenders will be looking for ways to protect their investment and get as much of it back, and with profit, as possible. One way in which they will do this is to increase your interest rates, so expect higher interests rates as compared to rates paid by borrowers with good credit.
Get Mortgage Pre-approval
Lastly, you will save considerable time and resources by getting mortgage pre-approval before looking at homes for sale. A mortgage pre-approval is good for all buyers, but it is particularly necessary if you have bad credit. With a bad credit score, you don't know how much mortgage you qualify for or even if you will qualify for any mortgage. Getting your application pre-approved ensures that you know exactly the range of home prices you should be shopping for.