Because of the growing dependency of the American economy on credit, your credit score is a vital component in having financial liberty. One of the hardest things to pursue is home financing with bad credit. A poor credit score has the ability to negatively affect your life in more ways today than it ever has before—from relatively small payments (such as your monthly utility bill) to large, lifetime decisions (like getting home financing to buy a home) your credit score can either save you or squander thousands of your hard-earned dollars! Here are some tips and reasons why home financing with bad credit should be avoided at all costs, and what you can do to fix it (such as downloading our FREE credit repair guide from the Build Credit Plus Team. You can also learn more about why getting a free credit score once a year is a good idea over at our BCP blog.
Home Financing With Bad Credit Puts You At A Disadvantage
When it comes to buying a home, the minimum requirement for a credit score varies depending on the type of home. For site-built and traditional homes, the credit score requirements of a lender can be extremely high. However, this is where the “saving you thousands of dollars” part comes into play and is important to consider when you’re going after home financing with bad credit. The higher your credit score, the less money you spend. Here’s why:
1) More Options
When searching for homes, the greater your credit score, the more home choices you will have. The base requirement of a 575 credit score will only make certain, entry-level homes available for you with few extras. Starting off a home search knowing your options are already limited can be a difficult thing for any family, which is why we are here to help you avoid the hard road of home financing with bad credit.
2) Lower Down Payment
The purpose of your credit score is to demonstrate to potential lenders how responsible you are in paying your bills on time. This is called your “creditworthiness.” Someone with a very low credit score is deemed less creditworthy and therefore less likely to get a loan for home financing. This is because the bank that would lend the money will be worried that the person will not pay them back! So, to offset this, the lending bank requires bigger down payments for people with lower credit scores. This way the bank ensures that they have more equity in the home so, in the case that the person stops paying their bills, the bank will not lose as much money. What does this mean for you? The higher your credit score = the less your down payment for a house. This will make a difference of thousands of dollars right away.
3) Lower Interest Rate
A third, and possibly the greatest, incentive to have great credit before buying a home is the interest rate. Interest rates can be a bit tricky because just a tiny little difference does not look like a lot at first but, in the long run, they can cost you tens-of-thousands of dollars if you are home financing with bad credit and a high interest rate! For example, let’s see how two different credit scores affect two friends, Jim and Carol, when it comes to buying a home. Jim has a credit score of 750 and Carol has a credit score of 650. They both buy a home for $200,000 with a 30-year fixed mortgage (this means that the interest rate does not change for the entire life of the loan). Let’s see how much more Carol ends up paying than Jim:
If you are thinking about buying a home, take a look at your credit score first. You want to know if you are going to be in a situation where you are trying to do home financing with bad credit, or one where your credit is adequate. You are entitled to receive a free report once a year from the 3 major credit bureaus: TransUnion, Equifax, and Experian. You can gets yours at: www.annualcreditreport.com. Is your credit score lower than you thought it was? Too low to qualify for a bank loan? Do you see typos/mistakes/errors on your report? Items that don’t belong to you? Build Credit Plus can help. A team of credit restoration professionals is waiting to assist you in improving your credit score in an honest, legal, and timely manner and getting you into your dream home as quickly as possible! Don’t need our help and want to do it yourself? Then check out our FREE credit repair guide on our site for more helpful tips on credit repair.
