Buying a House with Horrible Credit
What is Considered Horrible Credit?
Before we dive into the specifics of buying a house with horrible credit, let’s define what is considered a low credit score. In the United States, credit scores range from 300 to 850, with 300 being the lowest and 850 being the highest. According to FICO, a credit score below 580 is considered poor or bad credit. This means that if you have a credit score in this range, you may face difficulties when trying to secure a house loan.
The Challenges of Buying a house with Horrible Credit
Having a low credit score can make buying a house more challenging in several ways. Firstly, it can be challenging to get approved for a house loan. Lenders use your credit score to determine your creditworthiness, and with a bad score, you may be seen as a higher risk borrower. This may result in higher interest rates or even a flat-out denial of your loan application. Secondly, if you do manage to get approved for a loan, you may be offered less favorable terms. This means higher interest rates, longer loan terms, and potentially a larger down payment. These terms can significantly increase the overall cost of your house, making it more difficult for you to make payments and potentially causing further damage to your credit score. Lastly, even if you do secure a house loan with bad credit, you may be limited in your house options. Lenders may have restrictions on the type of house you can buy or limit the amount you can borrow. This can be frustrating if you have your heart set on a specific make or model.
Steps to Buy a house with Horrible Credit
While buying a house with horrible credit may seem daunting, it is not impossible. With these steps, you can increase your chances of getting approved for a house loan and potentially improve your credit score in the process.
- Know Your Credit Score
The first step in buying a house with bad credit is to know your credit score. Don’t just rely on estimates or free credit score services. Get your credit report from one of the three credit bureaus (TransUnion, Equifax, and Experian) and review it for any errors or discrepancies. If you find any, dispute them and get them corrected before applying for a house loan. - Consider a Co-Signer
Having a co-signer with good credit can significantly improve your chances of getting approved for a house loan. A co-signer is someone who agrees to take responsibility for the loan if you are unable to make payments. Having a co-signer can also help you secure a lower interest rate and better loan terms. - Save for a Larger Down Payment
With a bad credit score, lenders may require a larger down payment to secure a house loan. This shows that you are committed to the loan and reduces the lender’s risk. Saving for a bigger down payment can also help lower your monthly payments and potentially improve your interest rates. - Research Lenders
Not all lenders are created equal, and some specialize in working with borrowers who have bad credit. Research and compare different lenders to find one that offers the best terms for your situation. Be wary of predatory lenders who may try to take advantage of your bad credit by offering excessively high interest rates. - Improve Your Credit Score
While buying a house with horrible credit is possible, it’s always a good idea to work on improving your credit score. This can help you secure better loan terms and save money in the long run. To improve your credit score, make sure to pay your bills on time, reduce your credit housed balances, and limit new credit inquiries.
Summary
- Having a credit score below 580 is considered bad credit.
- Buying a house with bad credit is challenging as you may face higher interest rates, less favorable loan terms, and limitations on house options.
- Steps to improve your chances of buying a house with horrible credit include knowing your credit score, considering a co-signer, saving for a larger down payment, researching lenders, and working on improving your credit score.
Final Thoughts
Buying a house with horrible credit may require some extra effort and research, but it is possible. By following these steps and being diligent with your finances, you can improve your credit score and potentially secure more favorable loan terms in the future. Remember to always make informed and responsible decisions when it comes to your finances, and don’t let a bad credit score hold you back from getting the house you need.