There are ways to get home loans with bad credit if you ask yourself the right questions before going in. You will need to strategize in order to get a good deal. Here are the questions that you should be asking yourself.
Is my credit really bad?
Do not believe everything that you see on a credit report. If you have not challenged every item on the report, then do so before you even think of going into a banker’s office. Mistakes on your report are considered your fault, and even items that you may be responsible for may not be challenged by the creditor. Give yourself every opportunity to raise your credit score before your first home loan application.
Do I have enough money for the down payment?
If you do not have the best credit, a good down payment will work wonders for your chances at a good home loan. The minimum that you should try to get together is 20 percent, although there are government programs that may allow you to come in with less. Make it your business to stay off of the bare minimum requirements, especially when it comes to cash on hand.
Do I have enough money for the process?
The process of buying a home has various costs associated with it including attorney fees, transportation costs to go see properties, earnest money deposits, and many others. Some of these fees may be pushed forward to the closing, but not all of them. You will need hard cash on hand if you are going to get through the process of buying a house. There is nothing worse than starting and then being forced to stop over a few hundred dollars.
Do I have enough money for the closing costs?
Closing costs are another expense that you will not be able to get around. Although you can push some of these closing costs on the seller, you will not be able to negotiate them all over. Prepare for a cost that is around two percent of the total home price as the amount to close escrow. You will need this in cash.
Have I looked at bad credit government sponsored programs?
There are specialized institutions that are known as government sponsored entities (GSEs). These institutions are created by Congress specifically to help first time home buyers, veterans, and people with bad credit. These GSE programs from institutions like the Federal Housing Administration (FHA), the Navy Federal Credit Union, and the United States Department of Housing and Development (HUD), among others, give bad credit borrowers a leg up by insuring their loans. If you have not tried to qualify for at least one of these programs, start now.
Have I checked my local credit unions?
Federal programs are not the only programs that are set up specifically for bad credit borrowers. There are many local credit unions that make a business out of helping you as well. Make sure that you contact your local mayor’s office and Chamber of Commerce to get some leads on private institutions that are in your area that may help you.
Can I afford that much house?
You have opportunities with GSE’s and local credit unions, but you may be looking too high in the sky. Just because you have been given a pass on certain fees and the down payment does not mean that lenders completely forget that you have bad credit. The best way to get that credit back is usually to start small. If you cannot get approved for a GSE or local credit union program, then you may have to reduce the amount that you are looking for: Â For instance, try to keep you loan amount under the conforming loan limit of $417,000.
Do I have a great real estate agent?
You will need a great advocate on your side in real estate negotiations if you have bad credit. The real estate agent serves as this advocate for you. Make sure that you vet your agents seriously, and do not go into the process feeling badly because of your bad credit score. You will not be able to improve your score if you allow people to further take advantage of you. Do not let anyone tell you that you have to accept outlandish terms just to have an agent or a home loan.
Where do I want to buy the house?
You may be able to take advantage of the Rural Housing Program from the United States Department of Agriculture (USDA) depending on where you want to buy a house. Check the USDA website for eligible areas. They are actually not all in rural areas; you may be able to receive down payment assistance and loan insurance for low population areas in metropolitan cities as well.
How are my other financial metrics?
Your credit score is the first indicator that lenders consider, but it is not the only one. You can calculate other metrics that lenders check with free online calculators from the Navy Federal Credit Union such as your debt to income ratio, your credit used to total credit ratio, and other metrics. The consistency of your income is also a great way to get around bad credit. Bring in pay stubs for your negotiation.
2 Point Highlight
These GSE programs from institutions like the Federal Housing Administration (FHA), the Navy Federal Credit Union, and the United States Department of Housing and Development (HUD), among others, give bad credit borrowers a leg up by insuring their loans.
If you cannot get approved for a GSE or local credit union program, then you may have to reduce the amount that you are looking for: For instance, try to keep you loan amount under the conforming loan limit of $417,000.
