Once upon a time, buying a home with bad credit was nearly impossible.
Fortunately (for those with bad credit), times have changed.
Many factors have led to this change: increased competition in the mortgage
industry, a broader range of loan products and programs, Internet-based lending,
etc. Today, some lenders even specialize in providing home loans for people with
bad credit.
But even though buying a home with bad
credit has gotten easier, you still need a solid strategy. Here, then, are
four steps to bad-credit home buying success:
Buying a Home with Bad Credit - Four Steps to Success
1. Get a copy of your credit report.
Begin the process by
obtaining copies of your credit report from all
three credit agencies: Experian, Equifax and TransUnion. Review your report
closely for errors. You certainly don't need errors dragging your credit score
any lower than it actually is.
If you find any errors on your credit report, dispute them online through the
agency's website:
* www.equifax.com
* www.transunion.com
* www.experian.com
2. Shop for a lender.
Shop around to find a good lender.
Be wary of predatory lenders who take advantage of those with poor credit. Ask
for quotes from multiple lenders. Ask around. Try to stick with the trusted
names in lending. Do some research online to identify "red flag" lenders.
Now for some good news. Through a combination of mortgage industry
competition and government regulation, the number of reputable lenders who offer
bad credit mortgage loans continues to increase.
3. Focus on improving your credit.
Improving your credit score has both
short-term benefits (loan qualification) and long-term benefits (putting bad
credit behind you for good). You can improve your score by paying bills on time,
especially your mortgage. Try to pay down your existing lines of credit, and
don't open any new lines of credit. When you've elevated your credit score,
you'll be able to refinance the mortgage at a lower rate ... which leads to step
#4.
4. Refinance as soon as possible.
Buying a home with bad
credit can actually help you improve your credit. By holding down a mortgage and
making payments on time, you can eventually elevate your credit score to the
point that you quality for a lower interest rate.
When that happens, you can refinance the mortgage at the lower rate, which
will in turn lower your monthly payment and get you back on track. Better
credit, lower mortgage. You can do it!
