Last Updated on August 7, 2018 by
Buying a home is one of the most rewarding experiences a person will experience in life. The homebuying process can seem so surreal, whether you are still searching for your perfect home or are at moving day.
Sometimes, we make financial mistakes that catch up with us, and we may let them hold us back from buying a home. Well, don’t. Bad credit should not be the reason you are not able to obtain your dream. There are ways to repair your credit, ways to offset it, and different loan options that are available to make homeownership come true.
Knowing and Fixing Your Credit Score
The first thing you want to do is know your score. You can get a free credit report from websites like Credit Karma or Credit Sesame.
When looking at your credit report, make sure that everything that’s on there is supposed to be. If there is something on your credit report that doesn’t belong, such as a paid-off balance, make sure you send in written correspondence and have that resolved immediately. You don’t want anything bringing down your score.
If you have a credit card balance, try to pay as much as you can of it down. If you have a balance that is lower than your line of credit, this will show good toward a credit utilization ratio, which looks great in your favor.
Another thing you can do to repair your credit is contacting creditors. Now, while this may sound daunting, it’s not. Contact them and see if there is a way you can have your collections balances deleted off of your account. Maybe you can come to an agreement where you pay a certain amount, and they close out the account. A collections balance will only raise your credit score when removed from the report, so you want to make sure to work with them in any way possible to have this removed.
Ways Around Bad Credit
There are a few different workarounds that you can do to offset your bad credit score. The biggest one is bringing more cash to the table. Having a more substantial down payment shows lenders that you aren’t a risky investment. You will look better to them because the more money you have down, the less money you have to borrow from them. That will also lower your loan payments. You don’t want your payment to be too high, because if you can’t pay it, you may end up in foreclosure or bankruptcy. That will push you farther away from owning your dream home. In a lenders eyes, this is a win because they don’t have to worry about losing money. From your standpoint, this could push you closer to homeownership.
Some assistance programs will help with your down payment if you can’t afford it all on your own. Take some time to research your local city and county resources to see what grants may be available and if there are any down payment assistance programs. The FHA also offers assistance programs to low and moderate income families to help with getting the funds you need to secure your down payment.
You can also get a co-signer to help get your loan approved. Pick someone that you trust, and that knows your history. The co-signer should already be aware of all the changes you’ve made to make your financial situation, so they are more likely to help without all the extra nonsense and rules some people like to implement. Your co-signer should be entirely aware of your current financial situation as well. Then, you should let them know how they can help you repair past damages.
Counterbalance Factors
There are specific factors that you can use in your favor to help offset a lousy credit score. If you can show lenders that you have made financial mistakes in the past, but have learned from them, they are most likely to work with you. Showing these factors that counterbalance a bad credit history makes the deal less risky for the lender, improving your chances of getting the loan.
Some things you want to take into consideration are, of course, a more substantial down payment, having a low debt to income ratio, and no outstanding debts will all help in your favor. Also, show that you’ve been with your employer for a considerable amount of time and have a high income with this employer. It will help if you receive bonuses from this employer. The proof is in the pudding with this one. You are going to need documentation showing a lender that you have put yourself into a better financial situation and can afford what you are asking for, so they don’t see you as a risky borrower.
Explore Different Loan Options
There are quite a few different loan options that are available to people with lousy credit. If you served in the armed forces and qualify for a VA loan, you may be able to get your loan with no money down and no mortgage insurance, as they offer many benefit programs. Some VA lenders will also work with you if you have a weak credit score because the VA doesn’t have a minimum credit score requirement.
Another loan option is the FHA loan. They have low credit requirements, and they allow you to have your down payment gifted to you by family or friends if you are blessed enough to have that available to you. With an FHA loan, low and moderate income families may even be able to get an increased mortgage because the FHA insures it. That means that they can put down a smaller down payment than they normally would and still get a very enticing interest rate.
Owning a home shouldn’t be canceled out as one of your dreams just because of bad credit. There are programs out there that will assist you in getting the down payment funds if you need help, and there are lenders out there that are willing to work with you. Research is the primary key to finding your perfect mortgage and all the support that is available to you.
If you need help finding programs available to help you purchase a home, even with bad credit, simply complete to form below to speak with a Homes for Heroes affiliate specialist. They can answer your questions and assist you with making sure your homeownership dreams come true.
