Paying bills back in your younger days was not on the top of the priority list. You took out too much money for school, racked up credit card debt, and possibly stopped paying your debt. What didn’t seem important then comes to the surface as your adult goals change. Sound familiar?
Trying to buy a house with bad credit may seem impossible. Luckily for the young and irresponsible version of yourself, it isn’t. However, there are a few facts to know before you head to the bank.
It Will Cost You
You can still get approved for a mortgage with bad credit, but you’re going to pay for your previous mistakes. The bank is taking a bigger risk loaning money to someone with poor credit history, so they must protect themselves somehow. For this reason, they will give a higher interest rate.
Pretend you buy a home for $200,000. If you have good credit, you would likely receive an interest rate around 4.3%. However, without good credit, the bank will lock you down with a rate of 6.7%.
It may not seem like a huge difference, but you are shelling out an additional $86,000 by the end of the mortgage term! Ouch.
Have Cash in Hand
With a squeaky-clean credit report, you could stroll into the bank with little to no money and likely have no issue receiving the money you are asking for. As a risky customer, to the bank will want to see how dedicated you are to the purchase.
To prove you are ready for a large commitment, have the down payment the bank is asking for. With most home loans, to the requested down payment will be about 20% of the total property cost. If you have a house or price range in mind, start saving now!
Be Ready for Anything
You know you are not in the best position to argue with the bank about what they are willing to offer, so they will have the upper hand in this situation.
You may not receive the terms you want, but you may have to accept. The bank has the money, and you need it. It’s okay to choose a more affordable house to start with. After proving you can make the payments, go back and try for an upgrade later.
What to Remember…
Having poor credit is not the end of the world. You can become a homeowner like everyone else, but you may have to do things differently. Be ready with all of your information,and brace yourself for what the bank has to offer.
Did you get a home with bad credit history? Let us know how in the comments below. Get in touch with our experts if you would like help in repairing your credit, so you can get your dream house as soon as possible!