Helpful Tips on Buying A Home With Bad Credit

The home buying process can be complex and time consuming.  Having bad credit can make things even more challenging.  However, poor credit doesn’t necessarily preclude you from owning a home.  In our current economic climate loans help buying a home with a poor credit scoreare subject to a good deal of scrutiny before approval and the options available to you aren’t great.  Since the real estate bubble burst a few years ago, lending institutions have tended to be far more conservative, but it is still possible to buy a home with bad credit.

Most real estate and personal finance professionals will tell you that if you have sub-par credit, the best thing you can do is simply put off buying a house for a few years and spend that time improving your credit score.  This can save you a lot of money in the long run by enabling you to qualify for a low interest rate on your home loan.  Before you decide to purchase a house, make sure to ask yourself if buying is really a good idea right now.  Taking on a mortgage with bad credit will create an extra burden and could be the wrong financial move.

That said, if you have less than stellar credit and still want to buy a home, the very first thing you should do is get a copy of your FICO credit score.  You need to know where you stand before you begin talking to lenders and the difference of a few points can be important, especially if you’re on the lower end of the scale.  While reviewing your credit score, you might also spot errors.  If you do, you can report them to the credit agency that issued the report in order to improve your score.  After you’ve reviewed your credit score and decided that you’re going to get serious, there are several options available to you.

A route that many people go is to apply for Federal Housing Administration loan insurance.  By assuming the risk if you default, the FHA helps people qualify for a loan and can greatly reduce the down payment, which can be as low as 3.5% of the purchase price.  Many of the closing costs/fees can be rolled into the loan as well.  In order to obtain FHA loan insurance you must show current financial responsibility, but past bankruptcies or loan defaults won’t necessarily disqualify you.

Other options people sometimes use are local government home buying programs and obtaining a co-signer on the loan. Your local housing and community development office will have information on local government programs, if they exist.  Alternatively, you might be able to get a close family member to co-sign on your loan.  They can help you get approved by assuming the financial risk if you default.  Finally, you might be able to find a lender that will give you a shot, but be careful – you’re bound to pay a higher interest rate and commit to a much larger down payment.  The interest rate on subprime loans can be exorbitant, so signing up for one might leave you worse off than you were before.  Exercise extreme caution when looking for a subprime loan.

In conclusion, waiting it out a few years and improving your credit score is the most advisable route to go by most estimates.  If you do want to buy with less than stellar credit you can look into FHA loan insurance or try to find someone to co-sign your loan, but be wary of obtaining a sub-prime mortgage.  If you’d like to check out communities you’re interested in moving to, have a look at our MoveMap, which makes finding a new place to live a breeze!

How to Determine What House You Can Afford

When searching for a house, we often let our emotions get in the way and throw all logic out the window but we should always ask ourselves, “Can I actually afford this house” before we rush into signing any important documents. How to calculate how much I can afford on a new house

So how can you determine and measure the affordability factor? It all depends on how much you are willing to pay up front (down payment), how much you want to pay for your mortgage on a monthly basis, and of course, your total income. Other factors to consider are any big expenses such as university costs, student loans, medical bills, or your monthly savings account or retirement contributions. You must also factor in your monthly expenses such as credit card bills, car payments or any other expenses that may get in the way.

Your credit rating will come into play as well as this will determine how much you will be able to take out in loans for your mortgage so be sure to spend some time paying off as many debts as possible and increasing your credit score before looking for that perfect new home.

Now as far as actually calculating the affordability numerically, I could bore you with financial details and minutia or I can make it very simple for you. Go online and search for an affordability calculator. Many websites including cnn.com, msn.com and many real estate agent websites have a free online form where you plug in certain numbers and figures to determine the affordability of a home you are interested in.  They will ask about your income and any expenses you may have as well as other factors to quickly calculate this.

As a general rule, the debt to income ratio (how much you owe divided by how much you make) must not surpass 36% and housing payment to income ratio (housing payment per month divided by income per month) must be about 28% but of course, it varies from website to website. Using pre-determined formulas and percentages, these calculators will do the math for you while asking you very simple and direct financial questions. It’s as simple as plugging in the numbers and clicking a button. It’s quick, easy and convenient.

Once you determine exactly how much you can afford to spend on your house and for your monthly mortgage payments then you can begin searching for your perfect new home! Once you have narrowed your home search down to your top few contenders make sure to research the neighborhoods, communities and surrounding areas of each home on MoversAtlas! This is an important step that many first time and experienced home buyers overlook. It is easy to get caught up in the excitement of your individual home but the surrounding area is almost just as important as the home itself!

If you enjoyed reading this post you will find the main Mover’s Atlas site even more Interesting! There you can discover important information about what surrounds your current or future Florida home, give it a look: Mover’s Atlas.