For first-time home buyers, a low credit score can place a lot of obstacles in front of what’s already a life-altering purchase. An ideal scenario would see buyers taking their time and making smart fiscal decisions over the years to build up the type of credit score that sellers go for, but life isn’t always ideal. Sometimes the buyer’s market comes around, and you know that dream home in the perfect location isn’t going to stay available for long. For these moments, we provide four low-credit tips for your homebuying checklist:
- Pay off any debts you can. Before you start looking for bad credit opportunities, you should do whatever is possible to raise your credit score. Plenty of places offer free credit reports (at the cost of a bit of SPAM email), and if you’ve already put some cash aside for down payments, it might help lower the upfront and monthly costs of a home if you can remove lingering items from your credit history. Credit cards are always the number one place to look if you want to improve your credit score in a hurry, but we advise paying them off and continuing to make any meager interest payments rather than closing them down, since closing credit cards doesn’t help your score.
- Pay current bills in full and on time. Under normal circumstances it’s not a big deal if you just pay the minimum balance on the light bill and let the past due balance continue to linger from month to month. The power company will leave your lights on as long as you keep paying that minimum. For a prospective home buyer, however, past due balances and missed payments do not help your credit report.
- Save, save, save. This may appear a contradictory suggestion to the previous two, which both require more spending. However, the reality of the situation is that with poor credit you’ll probably have to provide a large down payment to convince the seller you’ve got the means. That means all money that isn’t going toward paying off debt should go toward saving for a hefty down payment, so skiing vacations and big screen TVs will have to wait until after you’ve secured the loan.
- Consider applying for an FHA loan. The Federal Housing Authority provides loans for credit scores as low as 500 (though 580 is the norm). FHA loans come with minimal requirements compared to conventional loans with similar payouts. The catch is that an FHA Loan must have private mortgage insurance throughout the duration of repayment, meaning the monthly and overall costs will be moderately higher than most other loan types.
Liberty Lending Consultants is here to help you understand the financing options available to all credit scores. We handle the aforementioned FHA loans, as well as conventional, VA, and USDA loans. For more information, feel free to contact us by any of the means found here.