Make no mistake about it. Buying a home with bad credit is harder than buying a home with good credit. However, that doesn’t mean it’s impossible. Just because you don’t have an amazing credit score doesn’t mean you can’t achieve the dream of homeownership.
What is ‘Bad’ Credit?
Credit scores range from 300 to 850. A perfect 850 is extremely rare. If you happen to hit this mark somehow, give yourself a standing ovation. For the rest of us, if you earn a 740 or better, you’re considered in the ‘top tier’. If you have anything below a 700, you start to breach the ‘risky’ category.
Always Check for Errors
If your credit score isn’t as good as you would like, the first step is to check for errors. It’s not uncommon for inaccurate blemishes to reduce a credit score. According to the Federal Trade Commission, one in four Americans find errors on their credit report.
Errors could include:
- Outstanding debt you’ve actually paid off
- Debt attributed to you that’s not actually yours, such as in the event of identity fraud
- Closed accounts reported as open
- Incorrectly reported late or delinquent payments
- Balance errors, such as incorrect bank account balances or credit limits
In some cases, these errors can be corrected by providing the appropriate documentation. However, correcting major mistakes will take time.
Get Your Down Payment in Order
One of the ways to combat a poor credit score is with a substantial down payment. Rather than just the standard 20%, you may consider putting 25% or 30% down. This gives the lender more security in the event you are unable to make your monthly obligation.
Explore Your Low Credit Mortgage Options
Some mortgage programs, like loans backed by the Federal Housing Administration (FHA), offer low down payment options for individuals with a minimum of 580 credit score. However, it’s important to remember these low down payment FHA loans also come with private mortgage insurance (PMI). In addition to FHA loans, VA loans offer low down payment options for qualifying borrowers.
Talk to Dan today about your options.