At HomeLoanGurus we know that it can be challenging to purchase a home with bad credit, but it's not impossible. We specialize in assisting first time home buyers or borrowers with credit scores below 620 get approved for a home loan. We came up with some high level steps you can take to improve your chances of buying a home with bad credit:
Improve your credit score: Start by reviewing your credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion) to identify any errors or discrepancies. If you find any inaccuracies, dispute them and work on resolving them. Pay off any outstanding debts or collections, make all of your payments on time, and avoid opening new credit accounts. These actions can help improve your credit score over time. It will be good to get your credit card balances down to 30% of your credit limit, and even better if you can pay them down to 10% of the credit limit.
Save for a larger down payment: A larger down payment can offset a lower credit score and make you a more attractive borrower to lenders. Save as much as possible for a down payment, ideally aiming for 20% or more of the home's purchase price. This can also help you avoid private mortgage insurance (PMI), which is typically required for borrowers with less than 20% down payment.
Research loan options for borrowers with bad credit: While traditional mortgage loans may be difficult to obtain with bad credit, there are specialized loan programs designed for borrowers with less-than-perfect credit. For example, FHA (Federal Housing Administration) loans and VA (Veterans Affairs) loans are known to be more lenient with credit requirements. However, keep in mind that these loans may come with higher interest rates or require additional fees.
Consider a co-signer or joint applicant: If you have a trusted family member or friend with good credit, you may be able to have them co-sign on the mortgage or apply jointly with you. This can increase your chances of approval and help you secure a mortgage with better terms.
Work with a reputable mortgage broker: Mortgage brokers have access to multiple lenders and loan programs, including those that cater to borrowers with bad credit. They can help you navigate the mortgage process and find the best possible loan options based on your financial situation.
Prepare to explain your financial situation: Be prepared to explain any financial hardships or extenuating circumstances that may have contributed to your bad credit. Lenders may be more willing to overlook a low credit score if you can provide a compelling explanation.
Be realistic with your budget: When purchasing a home with bad credit, it's important to be realistic with your budget. Make sure you can comfortably afford the monthly mortgage payments, property taxes, insurance, and other related expenses. Avoid taking on too much debt and be prepared to make sacrifices in other areas of your budget to ensure you can afford your home.
Remember, buying a home with bad credit may be more challenging, but it's not impossible. It's important to be proactive in improving your credit, saving for a down payment, exploring different loan options, and working with experienced professionals to increase your chances of success.
If you want to see if you are qualified, or have additional questions, you can start the process to see if you can become pre-approved.