Buying a Home With Less than Perfect Credit
While credit is a major factor of your mortgage loan, it is definitely not everything. It pays to know all of your options when you’re planning to buy a home.
Most people’s finances are less than ideal. When it comes time to make a major financial decision, this means finding creative ways to make compromises. Whether you are a first-time home buyer looking to finally take the plunge, or a seasoned homeowner hoping for a change, it pays to understand your full range of financial options. While credit is a major component of deciding your loan options, it is definitely not everything.
Try FHA Loans
FHA loans are approved by the Federal Housing Administration. They allow borrowers increased access to lower interest rates, which are insured by the federal government. This reduces the risk for lenders and gives those buying a house more options and flexibility in their spending.
FHA loans offer much lower down payments for those that are accepted and can be as low as 3.5% of the loan total. The FHA can cover borrowers whose credit score is at least 580. For those who want to seek these benefits, but have a lower credit rating, the FHA recommends a Consumer Credit Counseling program to avoid getting denied a loan.
Accept Higher Interest Rates
Dealing with the reality of higher interest rates on your loan will be important for most people purchasing a house with less than perfect credit. It’s not ideal, but there are ways to work this challenge into your family’s finances. Saving up and making a larger down payment will save on interest and smart budgeting will allow you to pay your mortgage off faster. In any case, understanding how to budget for your home loan payments is key for anyone – good or bad credit.
Explore All Options
Some home sellers take on the role of lender and provide seller financing options. This is a line of credit directly between the buyer and seller of the house that is used to facilitate some transactions. Although only about 10% of sellers will be interested in exploring this option, it can serve as an excellent alternative when traditional loans are unavailable.
If all else fails, sometimes the best option is to hold off for a couple years in order to save money and improve your credit. The credit boost gained in two years can often mean the difference between an affordable interest rate and one that is unmanageable. Having the ability to pay more up front will mean lower house payments overall.
Find Your Home
Often, finding your dream home within your budget is just about being realistic and setting the right priorities for yourself. Striking a balance between location, size, and condition will help put your goals into focus and give a clearer idea of your price range. An experienced realtor can help you connect your homeowner dreams with financial reality.
With Herring Bank, you have a partner in the home buying process. Contact us today to learn more about how we can help make your buying experience easier!