If you are a mortgagee, the lender will look at your credit score. If you have bad credit, they may refuse to give you a loan outright. Or they may charge you a higher interest rate if they are willing to allow you to borrow. This can make becoming a homeowner more expensive.
Since bad credit adversely affects your ability to get an affordable home loan, you might be wondering whether credit score there is any point in going ahead with owning a property
The answer is, it depends – but there are situations where you can bite the bullet and choose to buy a home even if your credit is not great. Here’s how you can decide.
Are you financially ready to buy a home?
The first thing to consider when deciding whether or not to buy a home is whether you are in generally good financial standing.
See, sometimes people have low credit scores because they do not borrow money and therefore do not have a high credit history. Or in other cases, disasters in the past have damaged their credit but now they are in a sound position financially. If that’s the case, then moving forward with buying a home may not be the worst option, even if you have to get a mortgage at a slightly higher rate than someone with a better credit score. You can start benefiting from property appreciation, work on improving your credit, and hopefully refinance after a short period of time.
But if your credit score is low because you’re struggling to pay off your existing debt. So, you definitely don’t want to buy a house and don’t want to create an extra heavy financial obligation for yourself.
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of how long it will take to repair your credit?
Obviously, it would be ideal if you looking to improve your credit score so that you have a wider choice of affordable lenders. But if it will take years to do so because you’ve had a lot of black marks on your credit lately, you might not want to wait.
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When you delay homeownership, you may notice that properties get more expensive in the interim. You will end up paying more and be deprived of the extra money that comes with the rise in property values. Of course, there’s no guarantee that this will happen, and prices may even go down, so a lot depends on the current market conditions where you live.
Delaying homeownership means you’ll be paying rent for a longer period of time and won’t build equity, and you might not want to continue doing so while you wait years for your credit to improve. Even if you end up paying a slightly higher mortgage rate because of your credit score, you can still improve your net worth by becoming a homeowner instead of a renter. That’s because by doing so, your payment will help you get the property, rather than just paying for a place to live.
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Finally, you’ll want to consider what mortgage options are really on the table for you when deciding whether or not to buy a home with bad credit.
There are some government-backed loans, such as FHA, USDA and VA loans, that can provide affordable options for bad-credit borrowers. If you use these programs or other mortgage lenders that cater to bad-credit borrowers, homeownership may be easily within reach.
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You’ll also want to remember that mortgage interest is tax deductible if you itemize, so the government essentially subsidizes the interest you’re paying. And you can refinance in the future. If your credit improves, you’re not doomed to pay high mortgage interest for life.
In the end, you should consider these three issues and carefully assess your personal situation when deciding whether a purchase is right for you. But if you’re paying off the mortgage and have a down payment, don’t assume that bad credit means the homeowner is out of reach.
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