Do you think owning your own home is just a pipe dream? Does it seem like you could never save enough money to compensate for your less-than-desirable credit score? Start thinking of home ownership as something you deserve and can achieve. If you’re ready to ditch your rent and commit to a monthly mortgage, keep reading.
- Credit Rehab
If you’re satisfied with setting a goal that you’ll work toward slower and with purpose, go ahead and take the time to improve your credit score. By doing so, you’ll be expanding your lender options exponentially, and this means you’ll naturally get better rates.
The first thing to do is get your credit report from the big three reporting bureaus and check for anything you can dispute. You’ll need to do so across all three bureaus, if the error shows up on all reports.
Then comes the hard part: stop spending, and start paying. Consolidation and moving debts around isn’t quite as effective as removing those cards from your wallet and paying what off the balance owed on time each month.
- The Cosigner Conundrum
If you can find a cosigner with good credit to help you get a loan, you’re very lucky. This is often a family member, partner, or very close friend who trusts you enough to use their credit to vouch for you.
When doing this with a conventional home loan, the person who cosigns for you won’t have to be on the property title, but they (and their credit) will be on the hook for the money.
If you miss a payment, one of the lender’s first courses of action will be to approach the cosigner for the money. As you can imagine, this is the kind of agreement that has both personal and financial impacts on both parties. Only seek a cosigner if you can truly afford the monthly payment amount.
- Look into Different Programs
As stated, not all homeowners are bastions of good credit, and bad credit mortgages do exist. FHA loans are a good example of this. The Federal Housing Administration offers these loans to first-time homebuyers with credit scores as poor as 500. If your credit score is 580 or higher, your down payment for the home will be only 3.5%. An FHA loan comes with the requirement for mortgage insurance.
If your credit is a little bit higher, but still not quite where a lender would want it, there are USDA loans. They can make the daunting prospect of a down payment disappear if you’re buying property in a certain area.
Moreover, if you’ve ever served, ask about VA loans. This too can reduce your down payment dramatically, and having a government agency on your side insuring a portion of your mortgage makes you more attractive to lenders.
In the end, there are many more options than just coming up with a large down payment. No matter what you choose to do, make it your mission to improve your credit. This way, if no alternative programs offer you what you’re looking for, you’ll still be on the right path to home ownership.
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