Even with good credit, it can be hard to buy your dream house in this competitive market. Especially with bad credit, it can be even more challenging. A poor credit score will make you look hazardous to lenders because it indicates you may be unwilling to pay your debts or are financially unstable.
However, a low credit score can be the result of having gone through a difficult phase in your life or not understanding how the scoring process works. If you think you are more than ready to buy a home – even with bad credit – then there are things you must keep in mind.
Here’s how you can purchase a house with bad credit thanks to a little help from bad credit online loans.
Monitor Your Credit
When you have bad credit and want to buy a house, the first thing you must do is to keep an eye on your credit.
You can get a free copy of your credit report from the credit reporting agencies.
Once you get a hold of your credit report, analyze it and ensure all the entries are accurate. If you discover an error or fault, discuss it with the company that recorded the wrong data or dispute the entry with the credit bureau.
Make sure to check your credit score often. By doing this, you will know how your financial activity is making a difference to your credit score. If it continues to go down, periodic checks will help you take immediate remedial action. In return, the higher your credit score, the higher your chances of getting a loan with a good interest rate.
Timely Payments Of Your Bills
Do you know what the most vital factor that calculates your credit score is? It is your payment history, which makes up at least 35 percent of your total score. That said, see to it that all your debt payments, such as auto loans and credit cards, are paid on time to increase your credit score and avoid late penalties.
Repay Your Debts
In case you didn’t know, your debt makes up at least 30 percent of your overall score. In particular, your score assesses what you owe against your available credit, generally referred to as your credit utilization ratio.
Make sure to keep your credit utilization ratio as low as possible. For instance, your credit utilization ratio will look much better to potential lenders if your outstanding balance on a 5,000 dollar credit line is 500 dollars. By having this much available credit, your 10 percent credit utilization ratio is attractive to lenders.
Additionally, if you accumulate or amass a huge balance the next month, make sure to repay it before your credit card statement is issued. By doing so, you can keep your ratio lower.
Steer Clear From Hard Credit Checks
Applying for a credit card or a loan will, for the most part, penalize your score if the lender carries out a hard credit check. In addition, closing an old credit card account or opening a new one will make your account’s average age decrease, a determinant that makes up 15 percent of your credit score.
However, there are instances where the perk of applying for a new account may exceed the effect on your score. For example, moving high-interest debts to a low-interest account is worth it to lower the amount of interest you pay each month. The hit to your credit will be balanced by the amount of money you will save on the interest which will result in paying off the debt faster.
If you want to enhance your score’s status immediately, then a rapid rescore will surely help. Typically, your credit score and report get updated every billing cycle. It means that after paying down your debt, your credit utilization ratio may not be displayed in your credit score for at least one month.
A rapid rescore can promptly change your credit score. Your lender may suggest it if you are close to getting a good score to be eligible for a better rate or an additional loan.
Opt For A Larger Down Payment
For the biggest financial advantage, save up a larger down payment. By doing so, you will look less hazardous to lenders. Also, it means that you will not need to borrow as much and may be able to avoid paying for private mortgage insurance if you put 20% down.
If your income is too high to be eligible for low-credit-score loan programs, don’t worry. You can still qualify for a traditional loan with a score of 620 or higher. Keep in mind, you will need to put down at least 25 percent, and your DTI should be at least 36 percent. While this may be intimidating and difficult to achieve, the positive is the lack of private mortgage insurance.
What does having a poor credit score mean for your mortgage rate? For one, you will be burdened with a higher mortgage rate if your credit score is low. As a result, you will have a higher borrowing cost and monthly mortgage payment.
If you can secure a loan with poor credit, you will not automatically be stuck with the same mortgage rate. After you improve your score, you can refinance to a better rate.