Many reasons might render your credit rating low. Problems such as less paying jobs and expensive medical bills can be some of the areas you have defaulted on a loan. A lot of people have gone through it; some are yet to figure it out. A low credit score is bound to happen to anyone. We get it.
But what happens if you have a low credit? Can you still buy a house with a low FICO Credit Score? Yes, you can. But it comes in handy; it’ll cost you extra money in the long run. You’ll have to be prepared to face higher interest rates and substantial down payment. We have prepared five steps you can follow to turn your situation around and become a proud homeowner. You can achieve this in a rather surprisingly short time.
Review your Credit Report
Credit rating is crucial to most financial opportunities. You get your credit score information from three companies, namely; Equifax, Experian, and TransUnion. The information may have slight differences from report to report. You can request for your credit report from each agency annually. “All three companies streamline the request process. The government sanctions this website.” It’s free to get these copies.
Contact each company individually to get your report. Read them carefully as you may find errors such as paid debts indicated as ‘not paid’ or someone’s credit information. If you find errors, you can clear up with your credit bureau. It’s not an easy process clearing error on your credit report, but it’s the fastest way you can boost your rating.
Look for First-Time Home Buyer Programs
Most states offer a variety of programs and grants for first-time home buyers and loans that come with low or no interest. There are also loans provided by the Department of Veterans Affairs, and USDA loans that are available in some rural and suburban areas. You may consider FHA loans. FHA Loans have lower credit requirements.
To qualify for an FHA –insured mortgage, you’ll only need to commit with a down payment of 3.5% of the home’s purchase price, with a FICO credit score of at least 580. Usually, there are loan limits stipulated for these types of loans, but they could be worth it if you meet their qualifications. You can get information about the different home buying programs by state from the Department of Housing and Urban Development.
Work on Boosting Your Credit Score
With a low credit rating, it might be an uphill task trying to get a mortgage. Consider rebuilding your credit to qualify for a loan quickly. Here’s how to start rebuilding your credit:
- Pay your bills promptly
- Become an authorized user a friend’s or relative’s account(piggybacking)
- Avoid opening any new credit card
- Pay off as much of your credit card debt as possible
Boosting your credit rating requires discipline and doesn’t happen overnight. Depending on which type of mortgage package you select, you could be locked into paying the interest . It could take you as long as the loan lasts. It is equal to spending thousands of dollars for years. Thus, the lower the interest rate, the more money you save.
Avoid Adjustable Rate Interest Mortgages
Adjustable-rate interest mortgages come with a fixed low-interest rate for several years, usually up to five years. After the stipulated period ends, your mortgage rate fluctuates depending on the prices at the time. Beth Braverman of CNN Money forewarns against giving into the adjustable-rate mortgage to get lower interest rates.
Avoid Predatory Lenders
Currently, predatory lenders are not as common as they were during the bursting of the housing bubble era. But, they are still out there. The swindlers do take advantage of people with poor credit scores who want to become homeowners. According to ResponsibleLending.org, some of the red flags that you should look out for include:
- High-pressure to take the loan
- Consistent request to sign loan documents that haven’t been filled out
- Balloon payments
- Early pay-off penalties
- Unauthorized refinancing of your loan
You might want to look out on the legitimacy of the mortgage company or the lender you’re dealing with before committing yourself. Also, ensure that the companies are established.
Buying a house with a low credit rating can be challenging. However, from the options discussed in this article, it’s possible to be a homeowner. Your specific situation will dictate which option is the best. With loans back up, such as FHA loans, and pretty secure down payment, you can get a loan even with as low as 500 credit score.
While you might want to get your home as soon as possible, be ready to deal with high interest and mortgage rates. It’s, therefore, reasonable that you take time to improve your score before shopping for a loan. In turn, you’ll gain access to lenders with lower interest rates.