Buying a home is a huge financial decision. Before starting to look for homes for sale, you need to know that this is something you’re ready for. If you have bad credit, you’ll end up having a harder time finding a house, so you need to be prepared.
Here’s what you need to do if you have bad credit and are looking to buy a house.
Pay off your other debt
Examine your credit report – if any debts listed on your credit report are a mistake, this could be hurting your overall credit score. Be sure the accounts listed are actually the ones you’re responsible for. If you notice errors on your credit report, you can work to repair your credit by disputing the entries. If you really want to pay down your debt – increase your income. You can do this by either getting a higher-paying job or by getting a second job. Another option to pay down debt is to consolidate your debt.
Compromise on location
If the area you want isn’t within your budget, you can expand the search radius or move further away from amenities that might bring the price up. Often, properties near public transport cost a little more, but if you don’t need that, choose further out and pay less. Buying a home in Levis, Quebec, will be less expensive than houses for sale in Toronto, for example.
Determine your budget
Consider your personal finances, borrowing options, and the total costs of buying a home. Banks typically base your mortgage approval amount on your gross monthly income. This figure will give you an understanding of how much money you have available each month to cover all of your expenses. When estimating what you can afford, it’s also important to have a clear view of your monthly expenses.
Save up a down payment
Start saving for a significant down payment. This will show lenders you’re serious about buy a house. A larger down payment shows the lender that you are more invested in purchasing a home since you put more money down. Some mortgages accept down payments of 3%, having a higher down payment is always best.
Improve your credit score
While this is not the answer many want to read or hear, it’s the most practical and can save you thousands in interest payments. Once you improve your credit score, not only will you have more mortgage options. But, you might be able to get your loan with a lower income requirement and down payment. If your credit score is below 500, you may have to wait until you increase your score. Also, if you have a bankruptcy on your credit, you will need to wait at least two years before a lender will start considering you for a new mortgage.