It’s important to understand your credit history and the cost of your bad credit.
How Does Bad Credit Affect Your Home Loan
If you have bad credit, lenders will typically approve loans with higher interest rates.
If you’re desperate, this will sound tempting.
But, be careful because even a small increase in your interest rate could accumulate in thousands of dollars in interest payments over the course of your loan.
Always run the numbers before agreeing to pay premium rates for the opportunity to instantly buy a home.
Finance Options for Buyers with Bad Credit
The US federal government offers assistance programs to help you buy your first home.
These loans are guaranteed by the United States Department of Agriculture and are a great option if you’re happy living in a rural community.
Usually, you need a score of 640 to get a USDA loan, but lower scores don’t result in an automatic disqualification.
If you suffer from a low credit score, the lender will look at the outside contributing factors before deciding on your application.
The USDA may ask for proof that your credit was damaged by something that was outside of your control.
They may also for utility statements to prove your creditworthiness.
The minimum credit score to qualify for an FHA loan is only 500, therefore if your credit score is between 500 and 579, you need to put down at least 10%.
If you have a credit score of 580 plus, you’re only needed to put down 3.5%.
If you’re a first time home buyer with poor credit, this program can help your purchase go smoothly.
The Department of Veteran Affairs guarantees the VA home loan, providing you meet the requirements of service.
If you meet their requirements, you could qualify for a no-down-payment to secure your home.
The VA home loan is less strict about the applicant’s financial history because the aim of the program is to get brave veterans into a safe and secure home.
Almost all veterans of the military, National Guard or reserve are eligible to apply for these loans.
Research State Assistance Programs
The U.S Department of Housing and Urban Development’s goal is to provide affordable homes throughout the country.
The type of assistance may vary depending on your income and area.
What Factors do Lenders Consider?
Before a lender approves a loan, they will evaluate a number of factors such as;
- If your existing rent payments are similar to the mortgage payments, the lender may acknowledge that you’re capable of handling the expense.
- If you’ve only just secured a high-paying job, the lender may see this as a liability and be less likely to work with you. However, consistently earning a high income for a number of years may strengthen your application.
- If you have a healthy amount in your savings account, this could balance out your bad credit.
You should expect to provide a high volume of paperwork that will verify your credit history.
In most cases, you will need to show your paychecks, tax statements and more, therefore staying organized will save your sanity later on!
Hopefully, this post has taught you that buying your first home is possible, even if you have bad credit!
All you need to do is put in the time and effort to figure out what is the best action for you and make the right steps towards your goal.
By James Fielding.