In this article, we’re going to review the Importance of Credit to Home Loans and answer the question:
Can I Buy a House With Bad Credit?
If you’ve ever asked, “Can I buy a house with bad credit,” you should know that your credit score is a key determinant in the amount which will be accessible to you when applying for a home loan, and it will also be a key factor in determining your borrowing cost (or you interest rate).
Hi, my name is Christian, a local residential redeveloper and principle of San Diego County Homebuyers and in this article I’ll answer that question – can i buy a house with bad credit – and connect the dots between a credit and home loans. I’ll also share with you key strategies to help you get a home loan even with bad credit, and three very easy-to-implement action steps to help you improve your credit (if you need to) so that by the time you’re done watching this video, you’ll know why bad credit shouldn’t stop you from getting a home loan, and have more confidence in your ability to take those easy-to-implement action steps to improving your credit. Let’s get right into it.
The measure of your credit worthiness is your credit score. This score is simply attained by assessing your credit history. Generally, if you have a credit score of 760 and above, then you are considered to be creditworthy (or have “excellent” credit). On the other hand, those with a credit score of 620 or less are considered to have an unfavorable credit history. And those of us who are wondering, “Can I but a house with bad credit,” can find hope here: because, that lower score makes a borrower eligible for a Federal Housing Administration or FHA loan. This is a secured and insured loan which guarantees payment of the loan by the FHA to the lender in the event the borrower defaults on their payments. I’ll elaborate more on that later in this video but for now let’s look at the importance of your credit to your home loan.
Your credit score will dictate the terms of your home loan, and for the most part, there’s no way around that. Your credit history, which is the determinant of your credit worthiness, is measured and scored on a scale from 300 to 850 – known as your FICO score. A person’s credit history contains information about how much they borrowed in the past, their adherence to repayment terms, inquiries other lenders made about what their credit history looks like
With this information, your current lender will determine
(1) how much interest you should pay,
(2) the monthly repayment amount and
(3) The maturity date of the loan. This will be when you should finished repaying your home loan.
Now that can be very stressful if you haven’t established any credit – if you’re asking: how can I buy a house with bad credit, you should know that NO credit means bad credit… but note that, as your credit information improves, so will your creditworthiness. Also, the interest you’ll be expected to pay on your home loan, even though it depends on your credit score, is much more affected by macroeconomic indicators; when interest rates are generally low in the economy, then you’ll most likely have a fair borrowing cost even with bad credit.
Generally, people who are asking, “Can I buy a house with bad credit,” have an average credit score of 620 and below are the same individuals that need to borrow money for a home the most. Unfortunately, this is the category branded as credit unworthy in the lending industry. Most people with bad credit history won’t even apply for a home loan for the fear of being rejected. Also, findings from the Assets and Opportunity Scorecard by Brooks, Wiedrich, Sims and Rice (a group of researchers) reveal that home ownership rates nationwide, has continued to dwindle. But here’s some good news, recent lending trends, according to Ellie Mae – a mortgage software provider – suggest that more people with low credit scores are now being accepted for mortgage loans. Because, lenders are now taking a critical look at credit histories to distinguish those who couldn’t meet their financial obligations because they lost their jobs, from those who deliberately didn’t meet their repayment schedules. If you find yourself in that first category, speak to a lender now – and keep in mind that some lenders accept mortgage applicants with credit scores of as low as 570 if they’re willing to make a sizeable down payment.
1. Make at least 15% down payment for the cost of the property
2. Prove a consistent rent payment for the past 12 months
3. Provide documents showing an inflow of additional income or well-paying job
4. Provide W-2 forms and other tax documents, as requested
Another option available to people with poor credit history is the Federal Housing Administration or FHA loan. This loan shifts the risk of you defaulting payment, from the lender to the FHA, thereby making the lender more comfortable approving your home loan. But you will be paying an interest rate which includes the insurance cost for the loan. One advantage of the FHA loan is that initial down payment can be as low as 3.5%. You can find out more by following their website here.
Additionally, you can speak to our preferred lender who specializes in lending to people with bad credit – look for their information in the description below.
Finally, these three simple tips will take you wondering, “Can I buy a house with bad credit,” to “I have great credit, where can I get the best rate?” and help you to greatly improve your credit history and ultimately, your credit worthiness a lot faster than you’d expect. Thereby increasing your purchasing power to “get more home for your loan.”
1. Track your spending to know which unnecessary expenses you can cut back on. There are many personal expenses manager applications on the Play Store and App Store that you can download onto your mobile phones to help you track your expenses (Now what I use personally is CreditKarma as well as Mint – and you can create an account online and access it on any device, really). Once you have the data on your expenditures over a period of time, you can know which areas you can cut back on.
2. If you have savings or liquid investments, use some to pay off your debts and consolidate multiple credits into one credit account. Speak to your fund manager on how that can be achieved.
3. Pay your bills on time. Do not delay payments for your rent and medical bills or any other bill. It is very important to demonstrate prompt payment of bills as that record can come in handy when applying for a home loan with bad credit.
Hopefully by now we’ve answered the question, “Can I buy a house with bad credit,” and you know this is a resounding: yes! Be sure to follow us on social media for more useful tips like this one. If you want to sell or buy a property in San Diego, please feel free to contact us at (619) 500-2444 and we will be of great service to you. If you have any questions, leave them in the comments below and I will do well to answer them. Once again, this is Christian from San Diego County HomeBuyers – The real estate team you love & know – we’re the team that knows your home: San Diego