A home purchase is probably one of the biggest buys that a person can make. And because it is such a big investment, mortgage lenders often require good to excellent credit history before granting a loan approval. What if you have a history of bad credit? Can you still afford to buy a home?
Yes you can! Even those with bad credit can still get approved for a bad credit home loan. Nevertheless, subprime loans are expected to have much higher interest rates and costs compared to standard loans.
Here are some things that you should consider before signing up for a bad credit home loan:
How much you can afford to pay each month for your loan.
Aside from your monthly loan payments, consider your utility bills, personal expenses, credit card payments, insurance fees, etc. See to it that your monthly salary is sufficient to cover all your financial obligations.
Consider the length of the repayment period.
Although a shorter repayment period gives you the chance to get off from your mortgage sooner, keeping up with the repayment can be very difficult. A longer repayment period means lower monthly loan payments. However, you want to make sure that the interest rate will be fixed throughout your loan’s term.
Mortgage loan rates and terms.
Different lending companies have varying rates and terms. Spend time comparing lenders and prices before signing up for the right loan. Always go for a fixed-rate loan as it protects you from the risk of soaring rates and excessive monthly fees later on.
Most bad credit home loan require a downpayment.
If you don’t have enough money to give as as downpayment, try to apply for a Federal Housing Loan. Although the interest rate can be high, these loans do not require any downpayment.
Prepare the necessary paperwork.
Do some research and make inquiries about lender’s prerequisites for mortgage loans. The specific requirements may vary from one lending company to another. Make sure that you have all the documents needed to avoid delays or unnecessary rejection of your application.
Know your credit rating.
Because of your poor credit score, lenders will surely give you higher interest rates. Try to raise your credit score by paying off all your outstanding credit card balances and do your best to keep up with your current payments.