Buying a Home With Bad Credit: 3 Important Tips

A perfect credit score is the goal. However, life circumstances keep many from achieving this goal. Whether it's a loss of income, expensive medical bills, or high credit card balances, these factors can lower your score. This does not mean you can't be a homeowner. While you may have to make a greater effort than someone who has a perfect credit score, you can still be a homeowner.

Find the Source of the Problem

First investigate the reason for your lower credit score, as some issues you might be able to easily resolve. For example, if the reason for your credit woes is double account records or another error, you can contact the credit bureau to have the error removed right away, which might offer an immediate credit boost.

In terms of high credit card balances, simply lowering your balance by a few percentage points can also affect your score. Even a slight boost in your score may open the door for more loan opportunities and a lower interest rate.

Save for Your Down Payment

When you have credit issues, you want to try to make a large down payment. A larger down payment is important for several reasons. First, it can help balance out a higher interest rate. The lower your credit score, the higher your interest rate. By applying a large down payment, you decrease the amount of money you are borrowing, automatically decreasing the amount of interest you will owe.

 A larger down payment is also helpful when you can afford a home, but the bank won't approve you for the full value because of your credit score. Again, by making a large down payment, you decrease the amount of money the bank has to lend you.

Be Realistic

One of the most important things you can do is be realistic during the home-buying process. The reality is that a lower credit score is not a brick wall, but it is somewhat of a bump in the road. If you are trying to purchase a home whose value is at the top of your budget, you might be disappointed.

As previously mentioned, the lower your score, the more interest you will be charged. In order to account for this interest, you might need to purchase a home that falls towards the lower end of your affordability scale. Walking into the situation with this possibility in mind is helpful.

Again, having a lower credit score does not mean that you can't buy a home. Make sure you are taking steps to make your credit score work. Click here and talk to a lender in your area for more information.