Becoming a first-time homeowner is a possibility even if you have bad credit. Your undertaking will not be easy in an already difficult process, but you can do a number of things to get you into a home. Be aware that your financial life will be under scrutiny more severe than good-credit homeowners. Your interest rates will be higher, fees will be higher, and you will have longer periods waiting for approvals. Here is advice to get you rolling.
Get Your Credit Scores
Obviously, there is no magic secret to improve credit scores overnight, but you can make a couple of moves to clean it up. First, go online and get your credit scores from the three credit reporting agencies: Equifax, Experian, and TransUnion. Laws exist that allow you a free report from each once a year. (Be careful where you apply, some sites automatically enroll you in an identity theft program.) Having your credit scores in hand will let your know where you stand before you even approach lenders.
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Pumping Up Your Credit History
Once you have your credit reports, scrutinize them. If - there often are - any mistakes, write a registered letter to the reporting agency telling them in excruciating detail about the bad item and why it should not be on your report. Those errors can be erased in a couple of weeks. Also, make sure all outstanding debts are current, even if you are in the midst of a dispute with any of the creditors. That lets prospective lenders know that you are willing to play by the rules.
High Hopes
As a first-time homeowner, do not be looking for your dream home. Few new owners do. With bad credit, you should look to lower your sights a little anyway. A first home is to get you from throwing away money on rent and to start building equity. Save your dream home for later in life when your career is finally starting to pay off and after you have methodically rebuilt your credit scores.
Flexible Seller
Also, you might want to pay particular attention to houses with owners who are willing to sign over the property and allow you to make the payments directly to them. You can thus avoid a lot of fees and outlandish interest rates. These are called owner carried mortgages or contracts for sale. Just be very careful and know the terms inside and out before you plop down any money. In spite of the advantages, these sorts of loans do not have the usual protections in place for standard loans.
Flexible Buyer
Similar to the homeowner deal mentioned above, another flexible way exists. Many sellers in a tight place are eager to unload a property they no longer want or can no longer afford. They often will offer lease to ownership or rent to own deals. They will take your rent to meet their mortgage, but usually will negotiate with you to apply a certain amount of that monthly rent payment towards a down payment or a cut in cost of the property. Again, just be careful and know what you sign. You might be able to approach owners who just have a for rent sign sitting on their property and find them willing to enter into such a deal.
Bad credit does not rule out home ownership. Clean up your credit act as much as you can. Be prepared to be flexible. Be careful. Nobody has the right to cheat you just because you have bad credit.
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