Bad Credit Home Buyers Guide
Buying a home is a huge life step – and it can also be pretty daunting. If you’ve got bad credit, you may be feeling overwhelmed and uncertain about how you can get the home that you want for a price that you can afford.
Many people with bad credit feel as though it’ll be impossible to ever buy a home with their poor credit rating. The good news is that it definitely is possible – it’s just really important that you follow a bad credit home buyers guide and do as much research as possible to make sure that you find the right option for you when getting the home that you’ve always dreamt of.
Here are some steps to follow and use as a bad credit home buyers guide to make the process less stressful and easier for the long term:
1. Budget Budget Budget
It might sound boring but you need to budget – no excuses. You need to sit down and work out your monthly income and how this compares with your monthly outgoings. You should include all costs – from utility and food bills to gym memberships and beauty treatments. Be as honest as possible when you are figuring out exactly what you earn and what you spend – this will help give you the most accurate idea of what you can afford.
Once you’ve worked out what you’re spending each month, have a look at whether you can cut down on any expenses or increase your wages. You may be able to reduce your energy bills or luxury spending, or perhaps you can pick up some extra shifts to help add to your savings.
Get an idea of what you can feasibly spend on a mortgage each month. If you have bad credit, it’s essential that you only agree to an amount that you can afford – if you default on your loan or make late payments, your credit score is likely to be further affected.
2. Know your credit rating
It’s important that you understand your credit score. If you have bad credit, you need to understand the reasons behind this as you’re likely to need to explain them to a potential lender.
It’s quick, easy and free to find out your credit rating by simply going online so there are no excuses for not knowing it. Once you are aware of your credit rating, you may want to take some time to try and improve it as this could increase your chances of borrowing more money for your future home.
Always try and get a copy of your credit report. Read through it carefully and check if there are any errors. You have the right to request any mistakes to be amended – this can also increase your chances of borrowing more money for your potential home.
3. Increase your down payment
A bad credit homebuyer’s guide wouldn’t be complete without the advice to consider increasing your down payment. To be able to get the best possible mortgage with the lowest rate of interest, you’ll want to show your lender evidence of a sizeable down payment or deposit – which will reduce the amount of money you’ll need to borrow.
If you can delay your house purchase until you have managed to save a larger deposit, it could pay off in the long term. When applying for a loan with bad credit, a large down payment will help to reassure lenders that you are more likely to be able to pay back the loan and are in a stable financial position.
4. Consider all the costs
Lots of people get an unpleasant surprise when the house buying process draws to a close and things start to get really expensive. It’s important that you consider all the costs involved in buying a home – from building surveys to check everything is in working order, to insurance, taxes and legal fees which are always inevitable.
If you’ve got bad credit it’s even more important that you’re not caught out by unexpected costs and that you have allowed for these in your budget. You don’t want to risk further damaging your credit score by failing to make payments or struggling to pay for essential services.
Sadly, things won’t get much cheaper once you buy your home. You’ll need to make sure you always have enough money in reserve for maintenance and repair works as well as to cover essentials such as home insurance.
5. Time your application
As bad credit home buyers, you want to make sure you’re in the strongest possible position to get a loan approved. Buying a home is a huge financial step and it’s something that you should take your time considering.
Have a think about your current situation; is your job stable? Can you show evidence of a regular income? Have you currently got a fixed address? If you have recently lost your job or are just emerging from a major financial event such as bankruptcy, you may want to delay applying for a home loan to avoid getting disappointing rejections.
Don’t panic though – bad credit home buyers can achieve their homeownership goals. Follow the steps above to help you through the process with the ultimate peace of mind.
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