For a vast majority of people, buying a house without taking applying for a mortgage is nearly impossible. Raising hundreds of thousands of dollars to finance a home is a privilege reserved for a few.
As it stands, to qualify for a home buying mortgage, you need a good credit score. This requirement has cut off many people from achieving their homeownership dreams. However, the good news is that having a bad credit score is not a condemnation that you will never own a home.
In this post, we share some insights to help Americans buy a house with bad credit. Thus, if you have forever longed to buy a house in Utah but felt the bad credit is keeping you from attaining the dream, we have some nice ideas to help you achieve the dream.
1. Get Your Credit Score Report
The first thing when it comes to buying a house is checking the credit score. You can download a credit score report online for free or ask your banker to help you get the credit score report. Alternatively, the credit card companies can help you get the current credit score. Thus, it is a good idea you check the current credit score so that you can know the way forward.
2. Check for Erroneous Entries
Now that you have the credit score report, scan through for errors on the report. Remember that the credit score represents the calculation of credit data in your credit report. Thus, the credit report has the historical data of how you handled credit repayments. A wrong entry on the credit report results in a bad credit score. In our analysis of the credit score report, you want to see if some bad entries could be ones affecting your credit score. Any errors should be disputed with the credit bureaus immediately.
3. Consider Paying Higher Interest Rates
You can still qualify for a home buying mortgage with a lower credit score if you are willing to pay a higher interest rate. Mortgage lenders will charge high-interest rates to borrowers with a low credit score. The high-interest rate is to cushion the mortgage lenders in case of late repayments or missed mortgage repayments altogether.
Thus, if you choose to pay a high-interest rate, bear in mind that it means you have to pay a high mortgage repayment altogether. in that regard, you need a plan to cushion you during the period of mortgage repayments.
4. Apply For Government Insured Mortgage
A mortgage-backed by the government will have lenient credit score requirements compared to the conventional home mortgage. Thus, the government-backed mortgages help thousands of people looking to buying a house but have a poor credit score. The government-backed mortgages are also less risky for mortgage lenders.
Here are some good alternatives when it comes to government-backed mortgages for borrowers with poor credit.
- The FHA home Mortgage
An FHA home mortgage is a loan that is backed by the Federal Housing Administration. The FHA home loan is available to first-time borrowers who have not purchased a home in the past three years. The FHA home loan requires a minimum credit score of 580. For borrowers who can raise up to 10% mortgage down payment, the credit score goes to as low as 500.
- The VA Loan
Veterans or active-duty members of the armed forces qualify for the VA loan, which is backed by the Department of Veteran Affairs. There is no specific credit score to qualify for the VA loan, but the borrower has to meet all other requirements.
5. Raise a Higher Down Payment
Mortgage lenders may be willing to take a chance on a borrower who has offered to pay a high down payment. Ideally, the logic of paying a high down payment is similar to agreeing to pay a high-interest rate. The mortgage lenders believe that a borrower with a low credit score is less likely to default if they have invested a huge amount as the down payment.
6. Work on Credit Score Improvement
While you can still buy a house in Utah even if you have bad credit, clearing your name is still the best approach. Unfortunately, clearing your name does not happen quickly, and will require some financial discipline. To start improving your credit score, consider paying all the bills on time. In addition, be sure to pay down as much of your credit card debt as possible.
I hope that you now have a good understanding of how buying a house with bad credit works. While getting a mortgage is easier, a bad credit score will complicate the process. Talk to your mortgage lenders for the best options that will enable you to buy a house in Utah even though you have a bad credit score.