Home ownership is a dream that seems just out of reach for many Americans. So many people wish they could stop throwing money away on rent and to start investing it into a home of their own. Unfortunately, getting a home loan isn’t as easy as walking into a bank with your pay stubs; it’s a complicated process that requires good credit and a history of adequate income.
There are so many people who are stuck in the cycle of renting that make more than enough to afford a very nice home. The only problem is that their credit scores aren’t high enough to qualify for the type of home loan that they need. This can be discouraging and can trap people in a cycle of paying for things they’ll never own.
On the other hand, it’s very important not to enter into a home loan unless you’re absolutely sure that you can afford it. This can end up with a sample hardship letter and eventual foreclosure on the home. If you’re in a good financial position with bad credit, there are still plenty of options open to you.
What Constitutes Bad Credit?
Before you call a realtor or walk into a lender’s office, it’s important to make sure you have the right credit for the loan you’re trying to get. This means understanding what credit is and what impacts it negatively. Obviously, if you don’t pay any of your bills and you don’t have a job, then you probably aren’t going to qualify.
Obvious stuff aside, there are a lot of different things that go into the mortgage approval process. Even having a good credit score doesn’t automatically mean that you get the house you want. You need to prove that you’ll be able to pay for it.
This is where they look at the debt to income ratio. Your loan officer is going to consider how much money you spend each month versus how much money you bring in.
If those numbers look good, then it’ll more than likely fall back on your credit score. A high credit score means that you routinely pay things back on time and that you don’t have delinquencies, negative marks, or an overuse of your lines of credit. Basically, it means you’re good with money.
The closer to 800 your credit score gets, the better off you’re going to be. If it’s less than 600, there’s a good chance you won’t be able to qualify for a home loan. Anything less than 500 makes it nearly impossible to get any kind of financial help. Bad credit is money that’s been over utilized and a history that’s riddled with debt.
Understanding Your Options
Having a low credit score isn’t the end of the world if you want to become a homeowner. There are plenty of things you can do to work on raising your credit score and to get yourself in a position where you can have the type of house that you want. You won’t have to settle for a rental or something that’s dilapidated and within your budget.
Start by looking at your credit report and looking for all the negative marks on it. See what you can and can’t fix immediately.
If you have creditors or lenders that have reported delinquencies, it’s very important that you contact them and set up a payment arrangement. Even a few payments can start to reflect positively in your credit score.
Also, you want to avoid incurring any more hard inquiries on your credit report. These show up as well and can bring your score down by several points.
When trying to get a mortgage, every single point counts. It may seem like a slow process, but you can definitely come back from past mistakes.
The best way to get the kind of home you want is to work on your credit, make sure you have the income to afford it and maintain it. You can always talk to a professional or a lending company to see what types of requirements they have.
Bad Credit Loans
When getting your credit score up is taking too long, and you feel like you’re in a stable position, there are bad credit loans available. If you’re a first-time homebuyer, you might want to consider an FHA loan or go in and talk to a local credit union. Private lenders are also an option if you’re able to pay the loan back quickly.
The more money you can get together for a down payment, the more likely a lender is to work with you. As a rule of thumb, it helps to have about 10 percent of the total cost of the home you want. When you’re willing to risk your own money in order to get the loan, lenders have a tendency to be more forgiving.
Be careful when trying to go through private lenders. Some of these companies can charge higher interest rates and have predatory collection practices. Never take a loan from a company that you haven’t researched extensively.
There are plenty of ways to check the legitimacy of a mortgage lender online and through other financial resources. Read everything carefully before you sign on the dotted line.
What Does Home Ownership Mean for You?
Having a mortgage is almost like a rite of passage into adulthood for some people. It signifies real ownership of something that can last your family generations.
Being a homeowner is about more than just owning a house; it’s also about creating a legacy for your family. Having a low credit score shouldn’t prevent you from enjoying this.
Being proactive and taking action as soon as you miss a payment, or you see that score start to drop can make a huge difference. The earlier you start taking care of your credit, the more likely you are to live the kind of life that you want.
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