At some point, every renter begins to realize that there is a financial cost associated with the convenience of apartment-style living. For some individuals with busy schedules, the lack of outdoor work and home maintenance is worth spending more for a rental on a long-term basis. Most individuals recognize the value of home ownership and at some point, begin the process of trying to purchase a home.
For a first time home buyer with bad credit, this process is often ripe with rejection from lenders and unanswered questions about how to present themselves as qualified and prepared home buyers. One of the first things that a potential home buyer needs to understand is that imperfect credit is the norm, not the exception. Understanding this fact and knowing what to do about it are two entirely different things, though. Here are some tips for buying a home when your credit is what most lenders would consider “less-than-ideal.”
If you have received denial letters for every mortgage application you've made, chances are you are not applying through the right lenders. One way that you can find a lender who is more inclined to work with first time home buyers is through a mortgage broker. One benefit of a broker is that he or she will be aware of loan programs designed to help those with less financial resources than major lenders require. Another benefit is that a broker will often be well-informed and experienced working with borrowers who need help navigating the home buying process as a whole.
One of the biggest problems in the past decade is individuals who purchased homes without first becoming educated on the different types of mortgage loans available. You must know the difference between fixed and adjustable rate loans and you must also be aware of predatory lenders, who might offer you a loan that you simply cannot afford in the long run. It is always best to be an educated consumer, so do your research. Be sure to look at FHA/VA loans to find out if you might qualify.
If you do not know your credit score and have no idea what might be on your credit report, now is the time to find out. You can obtain a free copy of your credit report each year from each of the three major credit bureaus. If you are denied credit because of bad credit, you will receive a letter that includes instructions about how you can obtain a copy of the credit report used in the company’s decision making process. Get your credit report and read through it carefully.
If you notice anything on your credit report that doesn't seem right, it is imperative to contact the creditor and ask them to remove it from your report. Sometimes, this is a simple process. Other times, you will be required to provide proof. Unfortunately, sometimes it is easier to prove when something is yours than to prove that it isn’t. If the amount in dispute is small, it might be easier to just pay it. The same goes for any other small amounts listed. If you can't afford to pay off the accounts, contact the listed creditor and negotiate! Often, they will accept a percentage of the total debt in exchange for the account being marked paid-in-full on your credit report. This process can take a month or so, begin as soon as possible.
It is acceptable to look at homes prior to obtaining a mortgage pre-approval letter from a lender, however most realtors will expect you to present this after looking at a few homes. Go online and find out what the market is like in your area. Find out how much houses cost, and the amount you will be paying in property taxes. This will enable you to determine what you can easily afford. Ask your realtor about mortgage companies that they might know about or have experience working with. The more questions you ask, the better prepared you will be.
Buying a home with bad credit is a challenging and often, frustrating process. Often times, you will need to find a home that is in a price range below the average selling price in your area. This requires time. Houses are listed and sold every day, so sign up for Realtor alerts that will tell you when a new home is for sale and when the price of a listed home drops. Expect that you will need a few months to find the perfect home. Try not to get too attached to a home until you are actually closing on that home. Unfortunately, there are always unforeseen events that can delay the closing process for a home purchase. If you are patient, you will find the home that is right for you, and you will find a lender who is willing to help you make your dream of becoming a first time home buyer a reality.
- Find the Right Lender
- Read About Mortgage Types
- Understand how Credit Works
- Look for a Home
- Be Patient
