Many people want to move into their own home but are worried about how to do so because of their credit rating. Whilst it can be more difficult if you’ve got bad credit, it isn’t impossible and there are plenty of avenues you can explore to ensure you move into your new home sooner rather than later. The longer you rent, the longer it’ll take to save and improve your credit score, meaning you could be waiting years to move, which isn’t ideal if you are pregnant or want to start a family. Here is how you can move into your own home even if you have bad credit.
Knowing Your Credit Score
The more you know about your credit score the better. Understanding what a bad credit score is the first step in knowing if you are going to struggle when moving from your rented accommodation to your own home. Bad credit usually sits at 500 or less. You can easily check your credit score for free online on any credit score calculator. Your credit score is calculated from a number of things such as payment history e.g. missed phone contract payments, the amount owed e.g. credit card payments, the length of your credit history and your credit mix.
You should also go through your credit report to ensure there aren’t any errors that could be unnecessarily holding you back. It is estimated that around 20% of credit reports contain mistakes. It can take a few months before this is taken off your credit report and your score amended, so bear this in mind when writing your letter of dispute. If everything is correct, you should then look at re-building your credit score. This can take a long time though, so you should still follow the steps below to begin your journey to owning your own home. Nevertheless, you should still do what you can to bring your credit score up for future loans.
Finding a Mortgage Loan
There are many mortgage loans out there that will accept you despite your bad credit. This does mean that you won’t be able to access the highest loans as you will not be accepted. The good news is you can still apply for a loan and then refinance this once you have begun to rebuild your credit score and are in a better financial situation. A mortgage loan for bad credit is a short-term fix until you have improved your credit score. Crediful has a great article on how to get a mortgage despite your bad credit and can assist you in comparing loan companies and finding the best loan for your credit score.
Having a large amount within your savings account also provides lenders with a good idea of how you are with handling money, even if your credit score is bad; this could be from a long time ago and you may have improved with your money massively since then. Usually, around 3-6 months’ worth of pay is enough to sway the boat on this one.
Saving for a Down Payment
Most mortgage lenders are more likely to provide you with a loan with bad credit if you put down a larger down payment. This may mean putting down more than you wanted and may mean saving for a little longer, but if you have been declined it may help you to be accepted next time you apply. If you put down a larger down payment, the loan company can provide a smaller loan which in turn means more safety for them. The fact that you can put down a larger payment also means they are more likely to trust that you can pay them back and keep up with your monthly payments.
This is also better for you in the long run as although you must put down more of your money now, when it comes to the future you will be paying less interest back on your mortgage loan, meaning you will save money. The lowest down payment to be accepted for a bad credit mortgage loan is usually around 20% but this depends on the lender. Obviously, if you can bring this money up even further then this is better for both you and the loan company. The larger your down payment the more likely it will be that you won’t have to purchase mortgage insurance, too.
Having bad credit shouldn’t prevent you from moving on with your life and owning your own home. Search around for the best lenders for your situation and ensure that you begin fixing that credit score immediately.
Get the best updates with the Harlem World Editor's Picks.
Photo credit: Via source.