You are dreaming of buying a house in Utah, and on your first visit to the bank, you are told you have “bad credit”. This can feel, as if the deck is stacked against you, hence no chances of living the American dream of homeownership. Not all hope is lost yet. You can buy a house with bad credit. Records show that besides high down payment requirements, a credit score is another major hindrance blocking many people from owning a home of their dreams. So, what is the credit score and what does it stand for?
A credit score is a numerical expression that is based on a level analysis of a person’s credit files. The numeric expression takes into account factors like payments history, the total debt load, and how much unused credit one has. The credit score information can be sourced from the credit bureaus.
In this post, we share helpful insights to help the huge chunk of Americans unable to buy a house in Utah because of a low or bad credit score. First, let us look at why a credit score is such an important factor in homeownership.
Why Bad Credit Score is an Issue in Getting a Mortgage
We have seen that the credit score serves to represent the person’s creditworthiness. Thus, borrowers with a good credit score are considered low risk. Remember that the mortgage lenders are in the business to earn good profits. Thus, the mortgage lenders are willing to fund the dream of homeownership so long as the applicant has a high or a good credit score. Those with a bad or poor credit score are likely to be turned away by the mortgage lenders. This is since the person with a poor credit score is considered a high-risk borrower. The mortgage lender does not wish to risk the amount, and so they simply decline the mortgage application from persons with a poor credit score. so, what next for persons with low or poor credit score?
1. Take Advantage of the Low Credit Score Mortgages
The solution to buying a house with a bad or low credit score is applying for the mortgage options requiring a lower credit score. However, note that the applicant has to meet certain requirements. Here are some viable mortgage options when you have a poor or low credit score:
- FHA loans for Bad Credit: The Federal Housing Administration offers mortgages for borrowers with a credit score below 580 so long as they can raise a high mortgage down payment of 10% or above.
- VA Home loans: Veterans, active-duty military and their qualifying spouses can afford their dream loan with a low credit score.
- USDA Home loans: There is no set minimum credit score. Thus, the buyers who meet the requirements set by the United States Department of Agriculture can apply.
As illustrated, each of the above options comes with its own set of requirements. Thus, borrowers are expected to verify whether they qualify.
2. Offer to Pay Larger Mortgage Down Payment
Mortgage lenders are concerned about the risk of losing money if they lend to a borrower with a poor credit score. a viable option that the mortgage broker may advise such borrowers is to offer a higher down payment. A high down payment can be considered as the commitment that the borrower is interested in buying a home. To run with this option, you have to start saving as early as possible, in order to afford the high down payment amount. Further, a down payment of at least 20% gives the borrower a chance to avoid private mortgage insurance, hence lower payments on the mortgage.
3. Buy Property for Cash
Buying the property of your dreams for cash is not out of the realm of possibility. Others have made it work, and you too can achieve the dream. However, this requires patience, and a high level of financial discipline to make the dream work. To that end, work out a savings plan, and get your finances in order, to fast track the dream of owning a home.
4. Improve your Credit Score
The credit score is a major factor when it comes to borrowing to buy a home. There are different approaches to implement in order to improve your credit score. here are some suggestions to bear in mind:
- Review your credit reports for bad reports
- Ensure all bills including your rent are settled on time
- Pay all outstanding debts
- Consider a debt consolidation plan
Improving the credit score may take longer than you anticipate. Thus, it is recommended that you keep tracking your credit score even when you do not plan to borrow.
5. Try a Partnership
A partnership is another option for buying a home if you have a poor credit score. you may have a poor credit score, but you have a high down payment, while the other party lacks enough down payment but has a really good credit score. a partnership can help you own a home, and eventually get out of the rent cycles.
Even with a poor credit score, you can still buy a house in Utah. talk to a mortgage lender near you for options on how to buy a house with a bad credit score.