We see many credit reports with low credit scores (anything less than 620), and often many scores in the 500's. This is BAD credit. If you are one of the folks affected by this terrible economy, you have a low credit score and you have a dream of buying a home, here's some simple advice for you.
It is unlikely you could be approved for mortgage financing with that credit score at this time.
Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website.
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE.
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.
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I wanted to suggest too, that it would be a great idea to directly talk with a lender who can look deeper into your credit and related information to let you know your best options. You are smart enough to realize that it could take a little waiting before you can actually purchase if everything is not in your favor, and that will allow you to prepare for your score to go higher and have enough for your down payment and other expenses that come along with the closing.
When does your lease expire? If you have time, you might still be able to purchase.
Let me know if I can help with any other questions.
The other question you need to answer is how much cash you have. Assuming that you can qualify for FHA-insured financing with the minimum 3.5% down, you'd likely need somewhere between 6% and 8% of the home's price to cover your up-front costs. So if you're pre-approved for $180,000 you'd have to show about $11,000 to $14,000 in liquid cash. Sellers may contribute toward your closing costs, but there's no guarantee. If you're a qualified veteran, or purchase a property in a designated Dept. of Agriculture area (generally rural) there is 100% financing available ... but that's it.
Of course, owning a home involves more than paying the note each month ... as Mark noted, rental charge does not necessarily equal mortgage payment. You should have a cash reserve in the event that something goes wrong ... and believe me, it will. What I suggest my buyers do is figure out their monthly expenses to the dollar ... then add 15%. If those numbers work, it should be reasonably safe to proceed. The worst mistake anyone can make is to purchase a home on a shoestring.
One more thing ... once you're preapproved for a loan and begin looking for a home, ask yourself if you're really happy with what's available in that price range, or if you're simply settling for what the numbers say you can afford. Then take a look at homes that are a step over your limit, and determine whether it's worth the wait to get something a little better. If you conclude that it is, then postpone the move until you can buy a home that you really want and can afford.
You've obviously had some credit issues along the way, and have moved forward ... congratulations. The last thing you want is to head back to where you've been ... the wrong home can easily do that to you. There's lots to consider here besides numbers. If I can be of assistance, please feel free to contact me. I wish you well.
Your score is pretty close to get the best type of financing and allow you to put min down payment. A good lender can review your situation (credit scores are not the entire story) and explain your options. Once we know what payment you want per month, we start looking for a home there in the Champions area.
Speak to a lender first and then decide if your ready to proceed. I have many great lenders on my web site. Speak to one or two of them and let us know if we can get started. Here is a link to my web site. http://www.markknowshouston.com/res_list.php?cat=12282&c
I work in this area and have been for over 20 years. I can represent you as a "buyer's agent" and set up some great technology to assist you with your home search. We look forward to hearing from you.
Bernstein Realty, Inc.
Anna Maria Durr, NMLS 266699, TREC 596662
2626 Richmond Ave., Houston,Texas 77098