If you’ve always imagined owning a home but don’t think you have the necessary credit history to pull it off, you’re not alone. Owning a home has long been a part of the fabled American dream, but in recent years, the prospect of homeownership has become increasingly out of reach for many Americans. Between problems with the housing market and the nation’s overall economy, financial struggles have resulted in low credit scores and little savings. Fortunately, there are ways to buy a home even if your credit isn’t the greatest.
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Face Your Credit Demons
When you don’t have an excellent financial history, checking your credit report is often the last thing you want to do. Reviewing one negative item after another can make anyone feel depressed, overwhelmed, and hopeless. However, your best bet is to just take a deep breath and jump in — you’ll feel proud of yourself once you do! Carefully review your report to find out what’s dragging your score down. If it’s been a while, you may be surprised that some things have dropped off your report due to the seven-year reporting limit. Doing what you can to start repairing your credit now will pay off in the future.
Get To Know Your Local Market
The first step in any housing search is getting familiar with your local housing market. Do some online searches and check out some real estate sites to get an idea of what housing prices are like in your area and understand what you can afford. Consider a variety of neighborhoods and be honest with yourself about your wants versus needs in a future home.
Understand Your Mortgage Options
Specific mortgage terms vary from lender to lender, but there are a few major types of mortgage loans that you should be aware of. Conventional mortgages, which are not backed by the government, tend to require the highest credit scores and down payment amounts of all the mortgage types. Government-insured loans, such as FHA and VA loans, typically have a lower credit threshold and require a much lower down payment. Depending on your circumstances,
you may also qualify for a first-time buyer program or down payment assistance resources.
Lock-In a Low-Interest Rate
Whichever type of mortgage you choose, it’s important to secure the lowest possible interest rate to keep your monthly payments — and overall amount due —as low as you can. Unfortunately, the lower your credit score, the higher risk you pose to a lender, which usually means a higher interest rate.
To reduce your interest rate despite your credit history, you could offer larger cash down payment, or ask a relative with good credit to co-sign the loan with you. If those aren’t options, you may consider paying for mortgage points. When you buy mortgage points, you pay the mortgage lender a certain amount upfront in exchange for a lower interest rate. Many factors go into determining whether mortgage points are worth the cost. A mortgage points calculator may
help you figure out if buying mortgage points is a wise choice in your particular circumstances. Be prepared for your journey to homeownership to take some time. Continue improving your credit score and saving what you can, and don’t rush into a bad deal that will only hurt your credit further. With patience, research, and planning, you can realize your dream of buying a home.
If you’re ready to take the first steps towards purchasing a home, the Lyons Group can help you navigate the process. Contact one of our experienced agents at 617-901-4500 or firstname.lastname@example.org today.