3 Useful Tips for Buying a Home With Bad Credit
Buying a home with bad credit may seem impossible. Banks offer favorable loans to buyers with high credit scores. They can also reject applications solely based on credit scores.
You can build your credit score while applying for loans. A higher credit score gives you access to preferable interest rates and loan amounts.
However, not everyone has enough time to raise their credit score. Buyers may find a dream home and want to close on the property now.
A bad credit score doesn’t have to stop you from buying a home. We’ll explore some tips and best practices for buying a home with bad credit.
1. Get a Co-Signer
Some buyers make enough money to cover a mortgage. However, a bad credit score holds them back from buying a house. Getting a co-signer for your home loan addresses this issue.
A co-signer strengthens your application. Lenders will consider the co-signer’s credit score.
A co-signer’s strong credit score will compensate for your lower credit score. You can find your dream home with www.yourtexashomesolution.com and close on it sooner.
However, co-signing comes with a significant risk for the co-signer. A co-signer becomes responsible for the loan if the buyer can’t afford it.
Co-signers are not in a position to seize the property. They also have no ownership stake in the property.
You must convince a trustworthy friend or family member that you can pay off the loan. Create a financial plan for making loan payments and present it to a potential co-signer.
2. Use an FHA Loan
FHA loans make homeownership more accessible to low-credit buyers. These loans help first-time homebuyers speed up their path to homeownership.
The credit score requirement depends on the down payment. You will need a credit score of at least 580 to make a 3.5% down payment. A credit score as low as 500 suffices for a 10% down payment.
You may need 100 extra points on your credit score to qualify for another loan.
The FHA loan also comes with a lower requirement for your debt-to-income ratio. FHA loans require a debt-to-income ratio of 43% or less.
Most Fannie Mae loans come with less favorable DTI ratios. Many buyers need a DTI ratio below 36% to qualify.
A higher debt-to-income ratio helps you secure a loan even if you have more debt. You can get a more favorable DTI by paying debts and raising your income.
3. Make a Larger Down Payment
FHA loan requirements demonstrate that larger down payments open up new possibilities. Larger down payments reduce credit score requirements.
Paying more money upfront lowers the lender’s risk in giving you the loan. Any borrower putting less than 20% down must pay PMI. This insurance policy covers lenders from the risk of default.
A larger down payment leads to lower monthly mortgage payments. Paying less each month lowers the risk of falling behind on payments. Putting down over 20% can help you score a loan with a bad credit score.
Buying a Home with Bad Credit: It’s Possible
Don’t feel discouraged about buying a home with bad credit. It’s possible to buy the home of your dreams even with a low credit score.
Make sure you build up your credit score as you look for a home. Raising your score by a few extra points will help with negotiations.
However, you can get around a bad credit score to buy the home of your dreams.
Want to learn more about buying a home? Keep reading this blog. It contains many resources to help you.