11.8% of people have a credit score that is below 550. If this sounds like you and you’re looking to buy your dream home, you might begin to worry that a poor credit score can force you to face reality.
Don’t give up on your dreams so easily because there are some valuable tips that you can use to still help you get closer to owning the home you’ve always wanted to own. Rent-to-own homes are also a possibility, but we’re going to get into that and more below.
Can It Be Done?
The first thing we want to explain before we start listing the tips you can use to own a home with poor credit is that several factors will answer if this is a possibility for you. The first factor is how bad your credit actually is.
Another determining factor is whether you have a source of income. When you get ready to buy a house, before a company lends you the money you need to buy the house, they want to know you’ll have the income to pay back the loan and make other monthly payments.
What outstanding debts do you have? Do you have credit card debts or a defaulted car payment?
The number and nature of your debts will be considered before you can determine if it’s possible to buy a home with your credit score. Now that you understand some factors that could make a difference when you’re searching for the house of your dreams, here are the tips that can help turn things around and get you closer to becoming a homeowner.
Check Out Your Credit Report
How can you rebuild your credit if you’ve not taken the time to pull your report and find out what’s on it? You need to pull your credit report to have a realistic idea of the work you need to do and to report any errors if there are some.
Sometimes, things might show up on your report that bring your score down, but it’s not something you’ve actually done. When you’re looking at your credit report, keep in mind that it will feature information such as:
- Utilization of your credit cards
- Number of lines of credit open in your name
- Payment history to include defaulted payments
You can check your score on a few trusted credit reporting bureaus, including Experian and Transunion. We recommend you sign up with a service that will continue to send you notifications when your credit score is updated.
Start Paying Off Your Debts
Before buying a home, take time to create a plan that will allow you to begin paying down your debt. You want to pay off debt before applying for a loan because you can prepare to pay a higher interest rate depending on your credit score.
However, if a lender sees that you’re actively decreasing your debts, they might be more inclined to cut you a break and provide you with a more optimal lending contract. It’s always better to pay down your debts because it alleviates stress off your shoulders for future funding purposes.
Another reason to pay off your debts is to give lenders an idea of how much of your income you can dedicate to paying these debts each month. The more debt you have, the earlier you need to start paying them off before you get ready to buy a home.
Research Your Loan Options
There are several types of loans that you have the option to apply for, but they all come with their own guidelines and requirements you must meet before you’re considered for the loan. Most of the loans require that you put some form of a down payment on the home before the lender covers the rest of the cost.
However, if you’ve not taken the time to save up for a down payment on a home or want to allocate the funds you do have to pay off other debts, you might choose to buy a home with no money down.
When you buy a home with no money down, you’ve typically applied for a loan backed by the government. When the government backs the loan, it essentially means that when the lender agrees to lend you money, they don’t take on excess risk if you default on the loan.
Get a Cosigner
Have you ever heard the saying that having no credit is just as bad as having poor credit? When you’re buying a home, not having credit isn’t negative, but it’s not useful because it provides the evidence lenders need to prove you’re responsible and pay your bills.
If you don’t have any credit, the next best thing you can do is find a cosigner. When you have someone act as a cosigner when you’re buying a home, they’re ensuring you will pay the mortgage.
If you don’t pay your mortgage, the lending company will come after your cosigner to satisfy the debt. It shouldn’t be taken lightly when you ask someone to be your cosigner.
They need to be responsible, but keep in mind that even if you have a cosigner, it doesn’t mean they own the house.
Can Poor Credit Stop Me From Buying a House?
When people have poor credit, it’s not uncommon to ask if it will keep them from buying a home. It’s not impossible, but it can make things more challenging.
Before you start trying to buy a home, consider getting a cosigner and paying down the debt you already have. When you’re ready to buy a home, contact The Homebuyer Creators and let us help you find a home you’ll love.
