As the real estate market continues to be hot and home values increase, it’s considered to be a great time to invest in a property. If you have poor credit, you may not know if you’re eligible to become a homeowner and can secure a home loan. Fortunately, there are a few tips to follow if you want to buy a home with bad credit.
Save for a Down Payment
Although you may have bad credit, you can be less of a risk for a lender if you save a sizeable amount for your down payment. This can make it easier to qualify for a home loan and can offset a higher interest rate. Consider saving 20 percent for a down payment, which can help you to avoid being required to pay for private mortgage insurance. This will also reduce your loan-to-value ratio, which will be more appealing to lenders and can reduce your risk of defaulting on the loan.
Apply for an FHA Loan
You’re much more likely to be approved for a home loan if you apply for an FHA loan, which is the most common type of loan to obtain for first-time buyers. FHA loans are ideal if you don’t qualify for a conventional loan and only require 580 to qualify. This means you can obtain a loan without waiting several months to attempt to boost your credit score. You’ll only be required to pay 10 percent of a down payment if your score is between 500-579.
Buy a Cheaper House
If you have bad credit, consider buying a cheaper house to ensure you don’t have to borrow as much money. Lenders are more likely to approve your application for a home loan if you’re not trying to borrow as much money. When determining what you can afford, keep in mind that additional expenses come with home ownership on top of your mortgage. This includes potential HOA fees, repairs, maintenance, homeowners insurance, and property taxes. Spending less than you can afford on your new home will also prevent you from becoming house poor, according to clevergirlfinance.com.
Pay Down Some of Your Debt
Paying down some of your debt can reduce your debt-to-income ratio to make you more qualified to take out a home loan, according to nerdwallet.com. Although your credit score may not be high, you’ll be more eligible to borrow money if you don’t owe a lot in debt. You can even work with a debt counselor to create a plan for repaying some of the debt before applying for a house.
Obtain a Bad Credit Loan
A Florida bad credit loan is a great option to consider to ensure you still obtain the funding you need. Many people choose to apply for hard money loans, which don’t require a high credit score to get approved. This type of loan has a higher interest rate, but is approved on the type of property you want to finance.
A subprime loan is another option if you’re looking for a Florida bad credit loan. The interest rates are more competitive and allow those with credit scores of less than 660 to get approved. The application process is also quick and easy to ensure you can expedite the home buying process.
Although you may be discouraged if you have bad credit, there are plenty of options available when you’re ready to buy a home without feeling limited with the route that you take. You can still find ways to get the financing you need and look forward to investing in real estate.