As if buying a home wasn’t stressful enough, it can be even more stressful when you have a history of bad credit. Unfortunately, we can’t help what has happened in the past. Many of us go through financial struggles at one point or another. Just because you have bad credit in your past doesn’t mean you can’t make up for it. Making up for bad credit may take a little bit of work, but it will be worth it in the end. Here are the steps that you need to take to buy a home if you have, or had bad credit.
1. Gather documentation of your income and financial status. Gathering all of the information about your past and current financial status is a key in making yourself truly aware of your situation. Knowing exactly what you are dealing with is going to make it easier for you to make up for your bad credit and know if you are able to afford a mortgage or not. Not only will it make it easier for you, but it will also show potential lenders that you accept your history, but you have either worked to become stable or are currently working on becoming more stable.
2. Research federal mortgage programs. You do have the option of applying for a loan. The Federal Housing Association offers loans that have more forgiving credit standards to qualify for loans and that require a smaller down payment than other home loans.
3. Expect to pay a larger interest rate. If you’re getting a loan for your mortgage, it will probably be more expensive if you have bad credit. The lender may be hesitant when working with someone with bad credit history so they will make you pay more each month because they aren’t sure that they will get all of their money back. This is why you need to be absolutely sure that you will be able to pay a loan back. A mortgage can take a long time to pay off due to the high interest that you might accrue. If you don’t think you are currently able to make loan payments, you may want to consider holding off until you have fixed your credit and become more stable financially.
4. Avoid further credit problems. Just because you have had issues with your credit in the past doesn’t mean you should let these issues continue or even get worse. This will only make it harder for you to get a loan for the home that you want. Stay on top of your credit. Some common problems to avoid are late payments on student loans, delinquent payments on other items, short sales, or foreclosures.
5. Work to fix your bad credit. As mentioned above, don’t just give up if you’ve had bad credit in the past. Work to fix your bad credit and get back on the right track. Get caught up on all of your payments and keep your debt to a minimum. This includes keeping your credit card balances low; don’t use more than 30% of the credit you have available on any card. You can also work to fix your bad credit by getting help from a professional. Meet with a mortgage professional that can help you create a plan that will prepare you for a mortgage loan and a new home.
As you can see, the road to redeeming yourself from a bad credit history can be quite the task, but it can be done. You have to be willing to work at it and seek the help that you need to make it successfully through the process.