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How to buy a house with bad credit

May 14, 2020 • Education

Buying a house can be intimidating and complicated, let alone if you have a more colorful credit score. We want you to know you're not alone and we're here to help you every step of the way. Here are a few helpful tips for buying a home with less than perfect credit.

If you have a more colorful credit score:

  • You’ll want to sit down with one of our Real Estate Advocates to review your credit report to see what might be hurting your credit score. You can access your full credit report for free at www.annualcreditreport.com. You can use apps like Credit Karma or Credit Sesame to monitor your progress. Read our blog What Makes Up a Credit Score to understand more about how credit scores are determined.
  • From there, we’ll make recommendations on how to help you improve your credit score whether that’s paying down credit cards, paying off collections, and/or making on-time loan payments. Also, check out these 6 helpful home buying tips to set you up for success!
  • Once we’ve identified ways to improve your credit score, continue these actions for 6 months to a year to really start seeing an upward trend in your score. If you need help holding yourself accountable, meet with one of our Certified Financial Coaches FOR FREE!

Once you feel comfortable with your credit score:

  • First things first, figure out how much you can afford to pay on a monthly basis. Your total home and credit payments should be roughly 40-45% of your monthly, pre-tax income.
  • Get pre-approved for a home loan.
    Here’s what you’ll need: a copy of your driver’s license, last two years of W2 statements from your employer, last 30 days of pay stubs, and the last two months of checking/savings statements.
    • While you’re waiting for pre-approval, avoid any major life changes (new job, change bank accounts, switch insurance providers, apply for other credit, etc.)
  • Once you’re pre-approved, the fun begins! Start shopping for your future home while keeping it within your pre-approved total.

After you purchase your home, continue making regular on-time loan payments for a year or two (this will increase your credit score), then consider refinancing to see if you can lower your interest rate.

We’re here as an educational and financial resource for you through all stages of life. When you’re ready to find your dream home, we’re ready to help you!

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