Lenders are a lot more cautious these days making buying your first home with bad credit seem like mission impossible. Trouble is circumstances have changed in the past few years with new loan limitations making it harder for people to get loan approval. While there are things you can do to maximize your chances of getting a loan, you should ask yourself some tough questions before investigating loan options.
First, consider if buying a home is good for your financial situation. Owning a home can be a lot of pressure with costs like homeowners insurance, repairs and property taxes many first time homebuyers have not had to pay before. Buying a home is one of the biggest lifetime investments many people will make. So you’ll have to do some soul searching to determine if owning a home is right for you.
While real estate values have declined in many parts of the country, the market will eventually gain back the value it lost. This is why many people are re-focusing their energies on paying down their debt rather than shopping for a house. But you don’t want to wait too long because now is the perfect time to buy a home with mortgage rates lower than they’ve ever been before.
If you’re attempting to buy a home with bad credit there are steps you can take to ease some of the financial strains. Many first time homebuyers whose FICO scores are unacceptable to conventional lenders are applying for U.S. Federal Housing Administration (FHA) loan insurance. The FHA assumes the risk of the loan, if the borrower (you) defaults. This has helped many first time home buyers to qualify for a loan who might not otherwise have qualified. Since 1934, FHA insurance has helped secure more than 37 million home mortgages. While you have to demonstrate some current financial responsibility, a past bankruptcy or foreclosure won’t automatically discount you from getting a loan. FHA insurance has helped many people buy their first home with a low down payment despite having a sparse or negative credit history.
First time homebuyers often have a family member help by co-signing on a loan. While reducing the risk to the lender, it also helps the first time homebuyer to get into a home and start building equity as soon as possible. There are still lending institutions that will give first time homebuyers with less than stellar credit a chance, but it comes at a cost. In uncertain economic times like these, getting a loan without good credit costs more money than it would with good credit. Your best option is to secure a loan now, begin building equity in your new home while continuing to pay down your consumer debt so that you can re-finance your mortgage loan later with a much more attractive interest rate.
The best way to start the process of searching for your first home is to get a copy of your credit report. This will help you to learn exactly where you stand so you can straighten out any details that make your credit less attractive to mortgage lenders. A lower FICO score means less attractive mortgage rates. Curbing discretionary spending now will improve your FICO score so you can secure a better monthly interest rate.