Purchasing your first home is difficult enough with good credit, but the process can be even more so when your credit score is less than satisfactory. However, it’s not impossible to secure a mortgage loan, and certain pieces of advice could go a long way in helping prospective homeowners as they embark upon their house-buying journey.
Several tips for first-time home buyers with bad credit include: improving your score, researching mortgage loans that have flexible credit requirements, and saving more money for your down payment.
Improve Your Credit Score
This is the most obvious guidance for a first-time home buyer with bad credit. Still, as everyone’s financial situation is different, it’s often easier said than done. This could make a world of difference when it comes time to applying for a mortgage loan, since credit is typically a key detail loan originators will assess.
As discussed in one of our previous posts, What Impacts Your Credit Score, there are several factors affecting the health of your credit. Your payment history plays a huge role: Credit card bills paid late, for instance, will negatively influence your score. Fortunately, if this is because you oftentimes wait until the last minute, it can easily be addressed. Furthermore, debt is just one factor impacting credit. Meeting with a financial expert to map out a plan to pay off that debt is a timely fashion will also be helpful. The amount of time spent been building your credit, the different types of credit you utilize, and the number of new accounts you have, are additional factors.
myFICO.com, the consumer division of data analytics firm FICO, provides official credit scores and advice on how to improve these all-important ratings. This includes setting up payment reminders and refraining from closing mostly unused credit cards.
Research Mortgage Loans With Flexible Credit Requirements
Conventional mortgage loans tend to have strict rules regarding credit requirements. However, there are other numerous beneficial loan options first-time home buyers may not be aware. Some even tend to be more forgiving for those with lower credit scores.
Take FHA loans, for example. Insured by the Federal Housing Administration, which is a part of the U.S. Department of Housing and Urban Development (HUD), FHA loans were first developed as an alternative for buyers who may not be able to qualify for a conventional loan. One of the advantages to applying for an FHA loan is that credit does not tend to carry as much weight during the approval process.
Other loans that tend to have more flexible credit requirements include VA loans and USDA loans, among others. Contact a trustworthy mortgage lending company to learn more and determine which one is right for you.
Put Away More Money for Your Down Payment
As aforementioned, bad credit is typically a red flag for lenders, depending on the type of mortgage loan you’re applying for. One way to become a more appealing applicant is to have a big down payment. With a conventional mortgage loan, the expected down payment is usually 20 percent, although this can vary. For others, such as a FHA loan, the down payment requirement may only be 3.5 percent. With that said, someone whose credit is subpar would demonstrate he or she is a serious buyer by having saved more money to put down. Plus, doing so also means lower monthly mortgage payments once the transaction is complete.