There are many things which can lead to bad credit. Perhaps you missed payments to your credit cards because you were on furlough. Perhaps you moved around apartments because you were deciding on where is the best place for you to settle down. No matter the reason, bad credit does not have to sideline you from buying a home. There are ways for you to become a home buyer.
How to Buy a Home with Bad Credit: Loan Options
You can get a home loan with bad credit. The catch is that your interest rate may be higher than if you had good credit. Bad credit makes you look like a risk for the bank. While you may have been down on your luck or just going through some growing pains, the bank needs to protect its loan to you. If you are able to afford paying back a bit more, then you can have the home of your dreams now.
Additionally, if you want to buy a home while you still have a poor credit rating, plan to put more money down. An average down payment should be about 20%. If you can put down more than that, then the bank may be willing to offer you financing.
How to Buy a Home with Bad Credit: Cleaning Your Credit Score
One of the things which is important to do before you go to the bank for a loan is to check your credit report. It is important to see what is on there. If there are any errors, you can dispute them. You may also decide to work with a credit company to help you make a plan to dispute any issues and to clean your credit report.
A smart idea is to get your credit report one to two years before you plan to buy a home. This way you have time to make clarifications and to prove that you can be a stable homeowner. To show that you are responsible with credit:
• Pay off your debt to lower the debt to income ratio.
• Make all credit card payments on time.
• Do not move in the year coming up to your buying a home.
• Do not make any large purchases such as a car in the year before you buy a home.
• Consolidate credit cards to one with a lower interest rate.
How to Buy a Home with Bad Credit: Ways to Save
The hardest thing about repairing your credit report is the time it takes. You will need to find somewhere you can afford to pay rent to live before you buy your home. Many people spend this time living with family so that they can pay less rent and save for the down payment. Additionally, you should rein in any of your spending. Make the goal of buying a home a priority over going on vacation or out to dinner.
When you have those keys in your hand, it will all be worth it.