Can You Buy a House with Bad Credit?

If you are in the position to purchase a home but you have bad credit, you may already have learned how hard it is to get approved for a mortgage. While lenders tend to make it harder for individuals with a negative credit score to receive approval, it is possible to buy a house with bad credit when you know where to start.

In this guide, we look at important steps you can take to buy a house with bad credit.

What is a Negative Credit Score?

A negative or poor credit score is anything below 580. Scores between 580 and 670 are considered fair.

Have You Spoken to a Lender?

Speaking to a lender will let you the mortgage amount you qualify for. This is a great way to budget, especially if you want to work on improving your score before buying a house. It will help you determine how much you can dedicate to the home loan and any outstanding debts.

Can You Apply for a Mortgage with Poor Credit?

The mortgage that you get approved for will depend on the type of loan, your credit rating, and what you can afford. Lenders want to know that you can afford the monthly repayments including interest and insurance cover. If you can provide proof of debt management and affordability, it will drastically improve your chances of getting approved.

Many people focus on improving their credit history first by creating a personalized debt management plan. After a few months to a year of dedicated repayments, you could improve your credit rating and be placed in a positive financial light. By following a financial plan with the steps to rebuild your credit, you can work towards achieving your goal of purchasing your own house.

How to Prepare When Applying for a Mortgage

Always give your lender proof of bank statements, debt repayment plans, and proof of consulting with a financial advisor. Focus on managing different types of credit. Depending on your financial situation, some take out a small line of credit on a credit card and pay it off every month. This is simply to show your lender that you are capable of managing your finances including the settling of debt. Taking out a small credit line is also a good way to improve your credit rating. But if you are concerned that you cannot keep up with repayments, don’t take on the additional credit!

Before you visit lenders for home loans, ensure that you have all your documents prepared. Staying organized will also keep you on top of the information you need to give your lender.

Expect Higher Interest Rates

Applicants with poor credit will pay higher interest on a mortgage compared to those with fair to good scores. Before you agree to the higher interest, ensure you can afford the interest and the monthly payment for the loan itself. This repayment should easily be managed on top of the credit you’re working on and daily living expenses.

Although your interest may be higher, you should still visit different lenders for rates. Compare these rates and repayment periods to determine who is providing the best options.

Stay Committed and You can Reach Your Dream

With commitment, you can purchase a place you can call home. It may take a little bit of time and some hard work but it can be achieved.