You want to buy a house, but you’ve got a low credit score, so you feel that homeownership is simply out of reach. The good news is, that’s not the truth.
Although credit is important, and knowing your credit score is even more essential, you still have options and resources that were established for the purpose of helping you find a home, by securing a loan.
The Impact of Credit
One of the very first steps to take is to ensure that everything on your credit history is accurate. Therefore, it’s important to obtain your credit history from the three main credit bureaus, Experian, Equifax, and TransUnion. Keep in mind that there are credit counseling agencies available and this may be something to consider. Some of these counseling agencies can consolidate your debt, allowing you to make one lump payment monthly to pay off items that are owed.
In time, this will increase your credit score, allowing you to be in a position to obtain a loan with a better interest rate. If this is something that you find too time consuming presently, then you have the option to revisit this avenue of consolidation later. Buying a home is a major investment and it is a decision that should not be made swiftly. It is important to understand what resources are available.
The U.S. Department of Housing and Urban Development
The U.S. Department of Housing and Urban Development is one of the best places to start. They provide an overabundance of information about home buying. One of the brochures on their online page entitled, Looking for the Best Mortgage explains, “If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories.
Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take time to shop around and negotiate the best deal that you can.” HUD even provides approved housing counselors that you can search for online or by calling (800) 569-4287. Another resource to investigate is the Federal Housing Association which is an entity of HUD. Hud.gov shows that FHA helps buyers by insuring loans. This allows an easier qualifying credit process, lower down payments, and lower closing cost.
Make Sure to Be Selective
Whether you choose to use the tools that HUD provides or not, it’s imperative to find the best lender possible. Your bank, a credit union, or mortgage firm can provide lending services. Just like you shop around for the best hotel rates, car payment, or vacation deal, is the same way that you want to look for a lending provider. Find the best interest rate possible. Know the difference between a conventional loan and an adjustable-rate mortgage.
If you select an adjustable-rate mortgage, you must understand that your mortgage payment will increase as your interest rate climbs. This means that your mortgage payment could jump hundreds of dollars from one year to the next. Also, predatory lending is a practice that is against the law, and consumers must be informed that there are companies who take advantage of individuals with low or poor credit scores. Therefore, you should make sure that you are not being offered something that is unsound.
Shop Around During Prime Realtor Season
A strategy to think about is to shop around during the prime realtor season, spring. Also, talk with your auto carrier or insurer to see if there is an option to combine home and auto for a better rate. Try to find home investors or property owners that will allow you to rent for a year and then purchase. This will allow you to work with someone who you already have a rapport with and may be more willing to assist. Finally, make sure that you understand all the cost involved. Not just the down payment and closing cost.
Remember after being approved for a loan, there are cost that are applied to the principal, interest, taxes, and insurance on the home. You need to understand if the tax payment is required monthly, bi-annually or annually. Also, a lot of lenders require that you pay for a home inspection and appraisal before you can qualify. Having a low credit score does not have to prevent you from gaining a home, but it is one of the most important decisions you’ll make, so choose wisely.