Authored by Kate Beswick in Real Estate
Published on 10-13-2009
Most of us dream of the day when we own the home that we live in and can stop throwing money away on rental fees. But as excited as the possibility of owning a home may seem, many people become quickly discouraged and discredit the idea right away simply because they have bad credit. Truthfully, buying a house with bad credit is a little bit trickier than buying a house when you have a good credit rating. But that doesn’t mean that it’s impossible or that you should give up your dream. There are a few ways that you can buy a house with bad credit, and be well on your way to financial success!
Your credit score is probably the first thing that any lender will look at when you are trying to buy a house. Although this will reflect poorly on you, your income is the second thing the lender will look at. This means that even if you have bad credit, but a substantial income, the scales may be tipped in your favor. What the lender is most concerned about is that you have a means to pay the mortgage loan back. And if you can prove that you have that means, lenders are often willing to overlook the bad credit.
Many sellers and lenders also often won’t mind that you have bad credit if you can provide a significant down payment on the home. This down payment will help because it will prove that you have the money to pay for the home. Also, the down payment will provide a percentage of the purchase price. So you’ll be paying for much of the home before you even own it officially! And that looks great in the eyes of lenders!
Private mortgage insurance may be another option available to those who wish to buy a home with bad credit. This insurance can be found through a private lender. It works just like other insurance does but it pertains specifically to mortgages. The private mortgage insurance lender will create a policy that will verify to the mortgage lender that your mortgage payments will be paid on time. These private mortgage insurance policies will give you one additional payment that you will need to make every month. But often the cost of these policies is as little as $20 a month.
Those who have bad credit but are looking to purchase a home should be aware that they will no doubt have high interest rates. These high rates protect the mortgage lender and they give the homeowner even more incentive to make their payments on time. These high interest rates also mean that the homeowner with bad credit will be paying a substantial amount for their mortgage. The good news is that these high interest rates will usually only be in effect for a short amount of time until you can prove that you can and will make your mortgage payments on time.