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How To Buy A House (Even If You Have a Less-Than-Perfect Credit Score)

Buying a home is, for many people, an essential part of the American dream. But for people with a checkered financial history - and a less-than-perfect credit score - it can feel like a dream that's out of their reach.

But just because you don't have a perfect credit store or a pristine financial background doesn't mean you can't buy a home! While it may be a bit more challenging, you can find financing and buy the home of your dreams even if your credit score isn't quite up to the level you'd like it to be.

Here are five tips for buying a house (even if you have a less-than-perfect credit score):

1. Make Sure Your Credit Report Is Accurate

If you're worried your financial past might prevent you from securing a mortgage, the first step is to go through your credit report with a fine-toothed comb to make sure everything is accurate and up-to-date.

Mistakes on credit reports are more common than you think. In fact, in 2016 alone, consumers lodged 43,000 complaints to the Consumer Financial Protection Bureau regarding inaccurate credit reporting, accounting for nearly a quarter of total complaints.

Inaccuracies on your credit report can contribute to a low score - and make it harder to secure a loan. Go through your entire credit report to check for inaccuracies and, if there are any, reach out to the credit agencies to have them removed. Even remove one or two inaccurate negative remarks on your credit score can have a big impact on your score and make it easier for you to secure a mortgage.

2. Pay Your Rent On Time For A Year

When offering a loan to someone with a less-than-perfect financial history, lenders want to know you're responsible and they can count on you to make your payments. And that's why it's SO important that you pay your rent - on time - for the entire year prior to applying for your mortgage.

Having a documented history of your rental payments that clearly shows you've made your payments on time for at least a year shows your lenders you're able to pay your living expenses on time. And since you were able to pay your rent responsibly, they'll be more likely to believe you will also pay your mortgage responsibly.

3. Apply for an FHA Loan

The Federal Housing Administration (FHA) can be an excellent resource for potential homebuyers with a less-than-perfect financial history.

An FHA Loan is a mortgage that's insured by the FHA. FHA Loans have more lenient requirements - these mortgages are available for potential buyers with a credit score of 580+ and at least a 3.5% down payment (500+ with at least a 10% down payment).

If you have some money to put down and are concerned your credit score could be holding you back from securing a mortgage, you'll definitely want to explore an FHA Loan. Just keep in mind that in addition to your mortgage, you'll need to pay insurance premiums (since the FHA is insuring your loan in case of default).

4. Find A Co-Signer

If there's any possible way to have a friend or family member with higher credit score and better financial situation, do it.

Having a co-signer can help you avoid all the negative aspects of applying for a loan with less-than-stellar credit, including sky high interest rates. Over the course of the loan, securing a competitive interest rate can save you thousands to tens of thousands of dollars in interest.

But before you ask someone to cosign your loan, remember: a cosigner is taking legal responsibility for your debt. If you default on your mortgage, the lender can take legal action against both you AND your co-signer. Make sure you're able to afford the mortgage and can manage the payments before letting someone co-sign your loan.

5. Make A Plan To Refinance

If there's no way to avoid a mortgage with a high interest rate, it's ok! Just because you've got a high interest rate now doesn't mean you'll have a high interest rate forever.

If you get stuck with a high interest rate, make a plan for how you can better your financial situation so you can refinance and get a lower rate in the future. Set a date to refinance and strategize ways you can improve your credit score before then, like lowering your total credit card debt, paying all of your bills on time, or looking into credit consolidation options.

There's no way around it - the better your credit score and financial history, the better (and less expensive) your mortgage will be. But financial mistakes don't have to keep you from buying the home of your dreams. With determination, a bit of creativity, and these tips, you'll be well on your way to buying your home - even if you don't have a perfect credit score.

LisaO'Connell

HomeSmart

ELO Team

Realtor®


Gilbert, AZ

623-980-9425


Not Your Typical Realtor. Not Your Typical Realtor Bio. You loathe typical real estate agent bios. Don’t worry, I do too. They’re like cardboard -- stiff, bland, and identical to every other bio out there. Instead of boasting ad-nauseum about awards and accomplishments you’re not interested in, I’m taking the novel approach of actually giving you what you want -- real answers to questions you’re probably wondering right now.... Will you return my calls and emails? Yes. Without question! I realize this is one of the major frustrations the general public has with dealing with agents. I get dozens of calls and emails daily, and I work hard to reply as quickly as possible. I’ve met many Realtors who are jerks. Are you? Depends on who you ask. If you ask certain agents who have stood between my clients and their real estate goals, they'll probably say "yes". A handful of people think I leave golden footprints in the sand. Those are the two extremes, and most people's opinion falls somewhere in the middle. Here's what I can tell you: I'm honest and candid. I take pride in being approachable and friendly. And if you need a quick real estate brain, or a strong dose of honesty, you’re in the right place. Loyalty to family, clients, and friends is one of my core values. Want to really find out if I’m a jerk? Mess with one of those people. Do You have experience doing exactly what I need? Until you tell me what you need, there is no way of knowing. These are "strong suits" of mine: Working with first time home buyers Residential Sales ****If your goal or situation isn't represented on that list, don't worry. Contact me anyway. If I can't help, I can get you referred to an another agent who can. What kind of work are you really good at? On a personal level, I'm pretty good at organizing (thank you Pinterest). On a professional level, here are the skill-sets that I’ve developed over the years... -Listening -Ridiculous attention to detail -Continuously seeking knowledge -Responsiveness -Honesty So if you are looking to buy or sell a home in the next few months or next few years, I hope you'll feel comfortable calling me to talk about your unique real estate needs. I'd love the chance to become your "go-to" agent.

License SA658406000

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