6 Tips On How to Buy a House With Bad Credit Score
All over the world owning a home is a dream of everyone. But in America owning a home is the American Dream. This dream can be cut short for some individuals no thanks to bad credit, no credit history or because they have little cash and do not qualify for a home loan.
As a potential home buyer, you may wonder how much you will need in your savings account to get a mortgage. I am sure you don’t know that you can buy a home without a down payment. The good news is that you can buy a home with bad credit and no money down.
There are options available that you can use to achieve this goal, despite things like low credit score which according to the FICO score ranges from a low of 300 to a high of 850. As you are aware, lenders accept scores of 740 or higher.
In most cases, if you have a low score and no money, you may consider accepting a higher interest rate from mortgage institutions or find a large down payment. But since you have a bad credit record, getting credit will be tough. However, the first step is to find the right lenders and select the right loan program. Then pay your bills on time and patiently rebuild your credit record.
Tips On How To Buy A House With Bad Credit And No Money Down
To move further, follow these steps below on how to buy a house with bad credit and no money down.
1. Know your credit score
The first tip on how to buy a house with bad credit and no money down is to find out your credit score. If you fire up the Google search engine, you will be able to get the FICO credit score for free. Start the search from credit score and credit card companies and then visit banks websites.
Also, try to get the three credit scores from the main credit reporting agencies. They are Equifax, Experian, and TransUnion. Also, make sure you check that the records in these reports are correct. If not, raise a query to correct them. And then collect your free report for 12 months.
2. Rebuild your credit
Due to your credit score, you might not be qualified for any mortgage immediately. So, start rebuilding your credit before you apply again for a loan from lenders willing to grant you one. To do this, pay all your bills on time each month to gradually build a new and improved credit history. Next, pay down as much of your credit card debt as you can. Note that if you have low credit-card debt, your FICO score will be better. This process takes discipline and time.
3. Increase your credit score to over 600
The next tip on how to buy a house with bad credit and no money down is to increase your credit score. For Mortgage lenders to grant your loan application with bad credit and no money down, you must meet the minimum lending requirements.
Also, note that it is rare for these lenders to grant you a loan if your credit score is below 600.
If your score is below then you must try to raise it to the minimum level by taking unsecured credits from credit card issuers. And then use the repayment period to improve your credit score. Also, reduce your debts by paying your credit cards on time each month.
4. Pick a mortgage broker you can work with
The next step on how to buy a house with bad credit and no money down is to choose a Mortgage Broker you can work with.
Be aware that Mortgage lenders will give loans to only top applicants, while other lenders do not grant no-money-down mortgage loans to people with bad credit.
Hence you need a Mortgage broker to relate with these banks and mortgage companies. If you work with one, they will help you to find a willing lender. But find out their track record and how much they charge before you choose one, to avoid falling into the hand of a bad broker.
5. You can decide to buy a Lease to own property
If the broker has searched among the primary mortgage institutions and is unable to get a willing lender, then you may consider a lease to own property option. So look out for a home seller who is ready to make a lease-to-own arrangement with you.
In this deal, you will accept to rent the property for a specified term.
During the period, a percentage of your rent payments will serve as your down payment. And during this time too, your credit score will improve thereby qualifying you to apply for a mortgage loan to buy the property.
6. Get a co-signer for the mortgage loan
Another method on how to buy a house with bad credit and no money down is to get a cosigner for a mortgage loan.
You can get a co-signer for the mortgage loan by asking your close relatives to become a co-debtor on your home purchase loan.
And if their credit history is adequate and they earn enough income, this will increase your chances of getting 100 per cent financing with bad credit. To get the best loan and lowest mortgage rate, meet with different lenders to get quotes.
Never settle on the first mortgage offer you receive.
Getting this kind of loan is hard but not impossible. You can start by rebuilding your credit score, hiring a mortgage broker, picking a lease to own property, getting a cosigner and then finally applying for a Mortgage loan. The bottom line is that you must have a minimum FICO score to get a mortgage. So keep building your credit score until you become attractive to these lenders. Try these tips now.