According to the National Association of Realtors, almost 75% of people view homeownership as one of the biggest dreams they have in their life. The mortgage rate is incredibly low due to the economic impact of the coronavirus. It will be very interesting for most first-time home buyers. However, buying a home may come with some risks, especially when you don’t prepare your budget wisely. In this article, we will recommend several steps on how you can start with your home buying process, even though you have a low or bad credit score.
- Check your credit report
A home loan or mortgage loan is a secured loan that you can use for buying your property. Your house will be the collateral for taking this loan. Your credit score will be one of the most important factors that will be checked before your home loan application is approved. This credit score will determine how likely you can pay the monthly payments regularly and on time. This score will also determine the total amount of loans that you are qualified for. The higher your credit score, the more likely you can get a low-interest rate. Many lenders and financial institutions are going to look at this credit report from their applicants. Before you apply for getting a mortgage loan, you can check the credit report from 3 major credit bureaus, including, TransUnion, Equifax, and Experian. You can also visit the AnnualCreditReport.com website for getting access to the free copy of your credit report. Check any errors that may impact your credit score negatively. Removing some of these errors can increase your credit rating significantly.
- Make a clear housing budget
Many countries, including the United States, face a recession due to the impact of the coronavirus. You need to create a household budget for ensuring that you can cover any expenses related to your house. You should be ready with some costs, such as property taxes, maintenance costs, insurance premiums, etc. Some mortgage lenders are going to look at your budget before they decide to give you a mortgage loan. They may also take a look at your income, bank statements, assets, and other financial obligations you have in your account.
- Consider taking some lower credit score loans
One of the most common loans for homebuyers is the conventional loan. This type of loan usually has a fixed rate and payment term. Its affordable interest rate will be very interesting for most people. However, most of these conventional mortgage loans require their clients to have at least 600 FICO scores. If your credit score is lower than this minimum number, you can consider finding some other options. Federal Housing Administration (FHA) loans can provide financing for people who have credit scores lower than 580. FHA loans are specially created by the US Department of Housing and Urban Development or HUD. These loans are intended for first-time homebuyers who don’t have a good credit score. You can take HUD loans from some HUD lenders.USDA loans are suitable for you who live in the eligible rural or suburban area. These loans are backed by the US Department of Agriculture. These loans offer full financing options with low insurance premiums, affordable interest rates, and no deposit required.
- Boost your credit score
Before you apply for a home loan, you can focus on some negative parts from your credit report. You should identify some negative parts from your credit report and improve them in the next 6 – 12 months. You can start paying off old debts, paying bills on schedule, increasing your credit utilization, and also decreasing the overall debt-to-income ratio. These ways can help you improve your credit score significantly. The better your credit score, the better chance for you to get your loan application approved.
There are many other easy steps for you who want to buy a house with bad credit. You don’t need to have a perfect credit score for getting your loan application approved. There are always some resources that you can use for helping you achieve your dream of having a house in the United States. You need to prepare everything, including any documents required to get the best financing options for your needs.