You have been paying rent each and every month and now you want to buy your own house. Unfortunately you have a bad credit report and now you are wondering if it is possible to buy a house with bad credit. The good news is yes you can buy a house even if you have a bad credit report or even no credit at all. You should also know that you are not alone in this ship so don’t panic. In the past you had to have a good credit report and pay a 20 percent down payment but those days are long gone. The federal housing administration offers FHA loans that have low credit and requires less down payment. Let us explore some of the options that you can explore as a first time buyer with bad credit.
Mortgage options for the first time buyers
For the first home buyers, they usually don’t have much to give to the down payments because of different reasons. The job market is unstable, there are economic downturns and that is why most of them have their sources of income compromised which leads to bad credit score. In this article we are going to discuss some loan options that can help you as a first time buyer with bad credit.
This mortgage lenders are in the business of making money and so they just don’t let one’s credit score decide if you qualify for a loan or not. They consider some factors that somehow make up for the bad credit history. Some of the factors they consider include:
- If you have large savings account your score will be better.
- Your employment history, if you have been employed for a long time, then you are in luck because your score will improve.
- If there is a possibility for advancement in the company you are currently working for then your score will be better.
- If you earn a high income then your score will be better.
Find a lender that can work with you even if you have bad credit
For most first-time home buyers, they usually have a bad credit history and they find it difficult finding a lender who can work with them. In 2008, there was a housing crash which made many lenders increased their minimum requirements of your credit score but in 2017 some loans started making a comeback in the game and you can try any of them. Some of these loans include:
- FHA loans. This loans requires a credit score of only 580. They are perfect loans for all first time home buyers. You will be required to pay a down payment of 3.5 percent if you have a bad credit history. You will be required to meet some requirements before being given this loans. This requirements are such as verifiable income which will require you to provide you paycheck and your bank accounts. You will also be required to have a stable employment and be have been working for the same company or same line of work for more than 2 years. There are different types of FHA loans where you can choose from such as FHA loans with bad or no credit at all where you will be required to pay a down payment of 10%.
- VA loans for veterans with bad credit. If you are a veteran of our beautiful country then this is the loan for you. You will get a 100% financing and that does not include monthly premiums. This loans can be accessed even if you have a bad credit history.
It can still be hard to find a lender to lend you money when you have a bad credit report but there are somethings you can do to improve your credit history and by that you will find it easy getting a loan.
How to maximize your fico scores
- Dispute any errors. The very first thing you need to do is know your credit score and when you have your credit score go through it to ensure there are no errors. If there is any error then be sure to submit it to the credit bureaus and it will be rectified within 30 days.
- Pay down your credit card balance. Make sure to pay down your cards as low as possible so that your credit score can improve.
- Get collection accounts removed. If there are collections on your credit card, contact your creditors and consult if there can be some arrangement for you to pay for delete. If it is not deleted then your credit score will not change.
If you do the above your credit score might just improve. And if they don’t you will still have a higher chance of getting the loan even if you have bad credit.
It is still possible to get a loan even if your credit score don’t improve. Let us dive and see some of the factors that can improve your chances of buying a house even with bad credit.
Factors that can help you buy a house with a bad credit
- Large down payment. When you save up for a larger down payment it will increase your chances of buying a house even if you have bad credit. For example if you have a bad credit and you want a loan from FHA loans, when you pay a down payment of 10 percent you will get the loan.
- Making sure there are no late payments within the last one year. Credit score is not the only thing that lenders look at when offering loans. If you have been timely paying your loans for 12 months consecutively then the lenders will consider it like you have rebuild your credit history.
- Having a low debt to income ratio. This is the amount of debt obligations that one have compared to the money they are earning. If you don’t have a lot of credit card debts then that’s a good sign.