People with bad credit, irrespective of the reason behind their problem, are never acknowledged as potential home buyers. Lenders tend to keep them at bay as dealing with such customers is a lot riskier looking at their poor credit history. Regardless of these obstacles, there are loopholes in the system that can be exploited to buy a property. Thus, you must thoroughly read the article in case you are thinking of buying your dream home.
We often see that bad credit is a small part of the story, and the debt-to-income ratio is the real culprit. As per our property experts, lenders are interested in buyers who use less than forty-three percent of income to repay the debt. They are keen on including your credit card debt for getting a clearer picture. It is better to settle the amount before looking out for a new home.
However, you will be doomed if the mortgage debt covers more than the forty-three marks. Thus, saving is the only real-life solution here. When you pay a larger down payment, then the need to borrow fund automatically decreases. It’s a hint for lenders to sell you the property. Generally, twenty percent of the overall due payment is enough as a healthy down payment.
Private money lenders
Taking money from private lenders is a tough decision unless the reward is worthy enough, i.e., your own home. Taking loans from people is a lot easier, and they are also more forgiving in case you miss a payment or two. Moreover, they will not be taking any loan fees and will also be more open to negotiation.
You can convince them by telling the benefits of investing money over keeping it in the savings account. Nonetheless, it does not mean that you make a fool out of people who trust you as without them, you will end up in a greater mess.
You can also go for seller financing options which are normally costlier than bank loans. There are many types of seller financing like lease option, mortgage, contract for deed, etc. thus, we will be dealing with current homeowners directly.
FHA mortgage works
Apart from the private mortgage lenders, the government of the US also provides loans through the Federal Housing Administration (FHA). Usually, the FHA serves loans to people with a credit score of more than 580. However, one will need to make a down payment of 3.5 percent of the home’s total value.
In case you have a credit score of less than 580, FHA can still process the loan only if your pay ten percent of your total home debt. Furthermore, FHA is not at all concerned about your employment history as it looks upon your current ability to pay future installments.
FHA lenders are keener on formality though, and their loan is known as Mortgage Insurance Premiums (MIP). You will have to pay the loan with added costs as it never expires, which might hinder your capability of buying a home.
All in all, a person with inferior credit score can also buy a new home after experiencing a few hassles.
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