How to Buy a House with Bad Credit But Good Income
Bad credit happens to good people. Of course it does: sometimes in life, there are expenses or circumstances that we did not foresee. A medical emergency. A pricey car repair. A job loss or layoff. A change in your family situation. Any of these can trigger burdensome debt or start the credit card debt cycle. It can feel that you’re not making any progress. Keep at it. You will get there. But will you be able to make your dream of homeownership a reality? Buying a house with bad credit is possible. Here’s what you need to know.
Buying a House with Bad Credit
Spend some time laying the groundwork to buy. What do we mean? Well, it is important that your credit score is as high as possible. Take advantage of your three free annual credit reports and see if there are any issues you can clear up. Are their mistakes that you can contest? Are there smaller debts that you can clear now? If so, do it. This will help boost your score a bit, and every point matters when it comes to buying a house.
Now, there may not be much you can do to boost a 500 credit score to a 750 - 850 in the short term. But if you can raise it to 580, you may be eligible for FHA, VA, and USDA loans for first-time home buyers.
- You are able to put down a sizable down payment. Start saving now. Having 20% is the gold standard; get as close to that as you can.
- Your overall amount of debt is low. Bad credit can linger for years, so if you’ve worked hard to get back on your financial feet, that is important information - and a huge help towards homeownership.
- Your overall financial situation is stable. Lenders will look at your income, assets, employment, and monthly expenses. They, of course, look at credit history, but if the other areas are strong, it certainly works in your favor.
Buy or Wait?
An important question you need to ask - and answer honestly - is whether you should buy or wait. Waiting allows you to rebuild your credit and get that score in a good neighborhood. It also gives you time to save for a hefty down payment and clear down any debt that could be standing in your way.
If you are determined to proceed, be aware that you are most likely going to have to pay a higher interest rate compared to someone with good, great, or excellent credit. This will, of course, affect your monthly payment.
To position yourself as solidly as possible in the eyes of lenders, here are some action steps you can take:
- Find areas in your budget where you can cut back and then save that money for your down payment.
- Work on cleaning your credit report.
- Make a commitment to pay all your current bills on time, every time.
- Speak to a housing counselor from a HUD-approved agency. They’ll give you the real scoop on buying a house with bad credit.
- Look into FHA loans. They can be a lot more attainable than a standard mortgage.
Want to get started now? Visit Homes & Land to access helpful resources and connect with an experienced real estate agent.