While having bad credit in your name sounds like one of the worst things you could face, it is an agonizing situation for most people. The gleam of light only coming from the fact that no one can tell if you have bad or good credit just by looking at your face.
On to the real good news – as an attorney injury personal working long days and nights to pay off student loans and other debts, you will be happy to learn that you can still buy a home. Just because you filed for bankruptcy, you had bad credit, or you have been through the humiliating home foreclosure process doesn’t mean that you cannot buy a home with your name. The only catch is that you will pay more.
To get your home loan approved in spite of the bad credit, do these:
- Check your credit score
You have to face your fears. And, since you wouldn’t want to carry the bad credit tag your whole life, fix your problems as you look to buy a home. The first step involves checking your FICO credit score. Get your credit report.
With the three credit scores collected from the three credit bureaus, your mortgage lender will use your median score to determine your creditworthiness.
- Fix errors
It is bad but, if you notice errors in the report, dispute them. You can dispute any item on your credit report. Lingering mistakes hurt your credit score further. Disputing and fixing errors will increase your scores.
To maximize your credit score, you might want to pay down credit card balances because your credit score goes up if you have low credit card balances. Also, get the collection accounts removed.
- Save up for a larger down payment
With a low credit score, say below 580, you will have to save more and pay more money for the down payment. You need to aim to pay a down payment of at least 20 percent and if you can pay more, even better for you.
The large down payment demonstrates your ability to handle the loan, despite the low, poor credit history. This also increases your equity in the house up front.
- Avoid the lender’s mortgage insurance
If you are borrowing more than 80 percent of the value of the property, you will need approval from the mortgage insurer and the mortgage lender. On the other hand, if you cover 20 percent or more of the funds, you will avoid paying application fees to the mortgage insurer. Not paying insurance saves you money while increasing your chances of getting the loan approved.
- FHA loan
The FCA loan is an alternative when you have a poor credit score. The loan comes with backing from the Federal Housing Administration, FCA loans are preferable because of the lenient terms issue for loans. All you need to do is to make a down payment of at least 3.5 percent. You can get a loan with the FCA even if you have a low credit score of 500.
- Don’t be late on payments
For 12 months before applying for the loan, ensure that you don’t have any late payment. Full payments for the last 12 months will tell the lender that you are re-established, despite the low credit.
- Build a low debt-to-income ratio
This refers to the amount of obligations you have compared to your income. A good sign of handling your mortgage payment if having zero car payment and little to no credit card debt. Your debt to income ratio should be less than 43 percent.
With bad credit waving at you, and with 10 years of bad credit after filing for bankruptcy, you can still own a home, follow the tips above. You could also get a private mortgage.