4 Ways to Afford a Home With Bad Credit
Thursday, April 23, 2020, 6:00 PM | Leave Comment
The thought of buying your first house can be exciting and overwhelming all at once.
Usually, once the decision to purchase a home has been made, the process can start rather quickly.
From innocently browsing homes online one day to meeting with realtors and mortgage lenders the next.
If you find you’re nervous about your credit score not being the best, know that there are still ways to afford your first home.
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Learn about FHA loans
FHA loans are a great option for first time buyers who don’t have the best credit score or can’t afford to put a lot of money down on a house. They make purchasing a home a little easier and more affordable for anyone in tough financial circumstances, like many people are right now due to this global pandemic. FHA loan requirements are more lenient than conventional loans; you can buy a home with a credit score of 500 or with only 3.5% of the purchase price down.
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Put more money down
If you’ve been saving towards a house for a long time, but your credit score isn’t where it needs to be, it’s smart to put as much money down as possible. Anything from 10% and higher can help alleviate the issues a bad credit score may create when trying to buy a house. This is because lenders will see you as more trustworthy due to the cash you have saved up, so even if your credit score is a cause for concern, they know you have the income to make your future mortgage payments.
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Work on improving your credit
If you have the time, the smartest thing to do is to improve your credit score. There are many strategies to improve credit that work over time. The best way to approach this is to not open any new lines of credit, work on paying your current bills on time, and pay down any outstanding credit as much as possible. All of these actions can help you boost your credit score before you meet with a mortgage lender for pre-approval.
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Deal with a high interest rate
If you don’t have the time to improve your credit score before purchasing a house, you can commit to dealing with a higher interest rate temporarily. Then, during the first year or two of owning your house you can work on improving your credit score and refinance your mortgage loan to get a lower interest rate. Within the last 2 years, interest rates on mortgages have been historically low, with the trend continuing due to the global crisis at hand.
It’s important to know that all hope is not lost just because you have a poor credit score, it is still possible to buy a house. The first step is to do research, weigh your options and determine which path is the best fit for you in your current financial situation and when you plan to buy your first home.
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