Once upon a time, buying a home with bad credit was nearly impossible. Fortunately (for those with bad credit), times have changed.
Many factors have led to this change: increased competition in the mortgage industry, a broader range of loan products and programs, Internet-based lending, etc. Today, some lenders even specialize in providing home loans for people with bad credit.
But even though buying a home with bad credit has gotten easier, you still need a solid strategy. Here, then, are four steps to bad-credit home buying success:
Bad Credit Home Buying - Four Steps to Success
1. Get a copy of your credit report.
Begin the process by obtaining copies of your credit report from all three credit agencies: Experian, Equifax and TransUnion. Review your report closely for errors. You certainly don't need errors dragging your credit score any lower than it actually is.
If you find any errors on your credit report, dispute them online through the agency's website:
* www.equifax.com
* www.transunion.com
* www.experian.com
2. Shop for a lender.
Shop around to find a good lender. Be wary of predatory lenders who take advantage of those with poor credit. Ask for quotes from multiple lenders. Ask around. Try to stick with the trusted names in lending. Do some research online to identify "red flag" lenders.
Now for some good news. Through a combination of mortgage industry competition and government regulation, the number of reputable lenders who offer bad credit mortgage loans continues to increase.
3. Focus on improving your credit.
Improving your credit score has both short-term benefits (loan qualification) and long-term benefits (putting bad credit behind you for good). You can improve your score by paying bills on time, especially your mortgage. Try to pay down your existing lines of credit, and don't open any new lines of credit. When you've elevated your credit score, you'll be able to refinance the mortgage at a lower rate ... which leads to step #4.
4. Refinance as soon as possible.
Buying a home with bad credit can actually help you improve your credit. By holding down a mortgage and making payments on time, you can eventually elevate your credit score to the point that you quality for a lower interest rate.
When that happens, you can refinance the mortgage at the lower rate, which will in turn lower your monthly payment and get you back on track. Better credit, lower mortgage. You can do it!
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