This is a sponsored post. All opinions are my own.
Bad credit affects every facet of our financial endeavors, and many Americans have let their poor credit score prevent them from pursuing a home purchase. Many would-be homeowners have forgone applying for a mortgage out of fear their loan application would be rejected. However, a low credit score doesn’t automatically put you out of the loan running. It is possible to get a mortgage with a low credit score from particular lenders, and with a bit of foresight and plenty of planning, you can make your home ownership dreams possible.
Organize Your Finances
If you’re seriously considering applying for a home loan, it’s important to organize and assess your financial situation. Before approaching any lender, it’s important to gather the essential financial documents; these may include proof of income, documents about indebted accounts, and any other financial status indicators that may affect a lender’s decision. From W2s to bank statements, tax returns to pay stubs, every little thing that can improve your financial standing in the eyes of a lender should be included.
It’s also important to include liabilities under your name, which might include student loans, car payments, or credit card debt. Sit down and craft a monthly expense report to help you and the lender determine your ability to afford a mortgage.
You’ll Need a Large Down Payment
Those with a low credit score will be expected to hand over a large down payment, so it may be necessary for you to step up your savings game before applying for a mortgage. It’s vital to understand just how much you can afford before beginning to apply for mortgage loans. If you’re finding it tough to put together a budget for your home purchase, consider working with a professional financial advisor to get better insight into what you can and cannot afford.
Do you have a family member that would be willing to cosign on a loan with you? If so, you have a better chance of getting a home loan application approved. However, take time to consider the ramifications of cosigning; if you default on any payment, your cosigner will be held liable. This can ruin relationships, and may make it harder for you to convince a family member with good credit to sign their name on your mortgage.
Consider an FHA Loan
FHA loans are provided by the Federal Housing Administration, and insured by the federal government. Even if you have a foreclosure or bankruptcy on your record, you can still apply for a loan. FHA loans generally require a smaller down payment than more traditional mortgage loans, so it’s a great option for individuals who can’t come up with the larger down payment often required from those with bad credit.
Pursue Less Conventional Loans
For those who can’t seem to procure a loan from traditional sources and lenders, there are a few less conventional resources to consider. Hard money lenders can provide financing for real estate purchases even when the borrower has terrible credit. While they do charge high interest rates, this can be a strategic move for borrowers who don’t have any other means of financing a home purchase. Some choose to pursue peer to peer lending, although this generally tends to be reserved for business real estate ventures.
Less Conventional Loans Mean Paying More
If you have bad credit, loans will cost you more. Nontraditional lenders know lending to someone with poor credit is a risky move. To offset this heightened risk, these lenders often charge much higher interest rates. If you can’t pay off one of these loans quickly, you’ll end up paying heavily in interest fees, so it’s definitely something to consider before applying for private money.
Bad credit doesn’t necessarily prevent you from purchasing a home. Poor credit can make the venture a bit more complicated, but with numerous options outside of traditional bank loans, you may find the perfect route for your home financing needs.
Are you curious as to what a reverse mortgage is? It is essentially a home equity loan without the regular installment payments that come with traditional loans. Instead of you making a monthly payment to pay back your reverse-mortgage loan the lender might actually be paying you every month for as long as you want, and as long as there is still a certain percentage of equity left in your home. Of course, you can also request a single large payment as well. In either case you don’t have to worry about paying the loan back until you move to another location, such as a different home or an assisted living facility.
Do you have any tips about buying a home with not so perfect credit?