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Don’t Let Bad Credit Keep You From Being a Home Owner

Wednesday, June 10, 2020
by The Hat Team


Perhaps you are ready to buy a home, but you think you can’t because of a low score on your credit report.  Bad credit can present challenges when purchasing a home, but it doesn’t have to keep you from moving forward with your dream of becoming a home owner.  With interest rates still low, now is a great time to buy, so don’t let bad credit hold you back! Here are some tips for how to buy a home even when you have bad credit:

  • Get your credit score.  Take a deep breath and do that search.  There are several places you can get your credit score for free. Just keep in mind that you will have three credit scores - one each from Equifax, Experian, and TransUnion. These are the three major credit reporting agencies, so it’s a good idea to get scores form all of them. Get Your Credit Scores
     
  • Make sure your credit report is accurate and up to date. Your credit report is like a history of how you have handled borrowed money.  There may be errors in it and if so, that could damage your credit score.  You can get a free credit report from each of the three major credit reporting companies annually. When you get the reports, look over them carefully to make sure all the information is correct. If you find any errors, you can dispute them with the reporting companies. How to Dispute Credit Report Information
     
  • Prepare yourself to pay a higher interest rate.  Qualifying for a mortgage with a lower credit score is possible if you are willing to pay a higher interest rate.  That’s why it’s a good time to buy when rates are relatively low to begin with.  Lenders charge more to protect themselves should the buyer make late payments or fail to make payments altogether. Unfortunately, bad credit means that you likely have a history of doing just that.  While a higher interest rate does mean a higher mortgage payment, it may be worth it to become a homeowner investing in your own home rather than paying rent to a landlord.
     
  • Apply for an FHA loan. Loans insured by the Federal Housing Administration (FHA loans) have lower credit requirements.  With a credit score of at least 580, you can qualify for an FHA-insured mortgage with a down payment of just 3.5 percent of your home’s final purchase price.  However, there are some catches.  First, FHA loans are insured by the Federal Housing Administration, but they are originated by traditional mortgage lenders.  Even though they can originate FHA-insured loans for borrowers with scores as low as 500, it doesn’t mean they are obligated to do so.  They can choose to require higher credit scores.  Secondly, FHA loans come with a financial penalty.  With traditional mortgage loans, you can cancel your private mortgage insurance (PMI) after building up enough equity.  With an FHA loan, you must maintain private mortgage insurance for the life of your loan. Let FHA Loans Help You
     
  • Make a larger down payment. If you can come up with a larger down payment, lenders may be willing to take a chance on you. While it’s possible today to get a mortgage with as little as 3 percent down, people with bad credit may find that making a larger down payment is what will get them the mortgage loan they seek. When you put down more money up front it shows the lender that you are willing to take on the risk of a home loan. The lender also will feel you are less likely to walk away from a large financial investment.  If you can come up with a down payment of 20 percent or more, you will increase your chance of getting approval on a mortgage loan. Top 10 Ways to Save For a Down Payment
     
  • Rebuild your credit. If your credit is so bad that a mortgage is not feasible right now, don’t despair. It just means that it is time for you to start rebuilding your credit so that you can become a home owner in the future.  To do this, you simply need to start paying all your bills on time every month so that you can build a better credit history.  Also, pay down as much credit card debt as possible to raise your score.

If you are in the market to buy or sell a home, let Sandra Nickel and her Hat Team of Professionals assist you with all your real estate needs!  Call them today at 334-834-1500!

Photo Credit: virginiamortgagelender.com

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Defeat Debt and Become a Homeowner in 2018!

Wednesday, January 3, 2018
by The Hat Team

As a real estate agent, I love helping people purchase their first home.  However, there are two major challenges that I see time and time again with first time home buyers:

  1. They often carry too much debt.
  2. They don’t have enough cash for a down payment.

These two issues are strongly related in that people need to reduce debts that inhibit them from saving money.

We all know that we shouldn’t spend more than we earn, but falling into the debt trap is easy to do.  You see a pair of boots that you must have and you think, I will use my credit card now and pay for them with my next paycheck.  It sounds reasonable at the time, but next thing you know you’ve done something like that often enough that there is a beastly credit card balance hanging over your head.

So, now you’re in debt.  You have regrets, but no use doing the “should have, would have, could have” dance.  Now it’s time to move forward and take the steps needed to reduce your debt.  Here is a list of things to do to change the way you manage your money.  Follow these steps and before you know it you will be on your way to saving for a down payment on your first home!

  1. Stop adding to your debt. The first step to getting out of debt is to stop adding to your outstanding balances. To remove temptation, carry only one credit card with you…and make sure it is the one with the lowest limit so that it is impossible to get into serious trouble with it.  Leave any other credit cards in a safe place at home to keep yourself from going on an impulsive shopping spree. 
  2. Take an inventory of your spending habits. This may not be a fun activity, but it is helpful to see how you are spending.  Create a list of where your money goes each month including rent, utilities, car payments, food, credit cards etc. Once you have done this, split the list into two categories: bills you must pay every month and debts you need to pay off.  The second list then can be organized in order of urgency, either based on outstanding balance or highest interest rate.  Now you will have a clear picture of your debt situation. Financial Inventory
  3. Eliminate the largest debts first. Make a minimum payment for each of your credit card bills, but then make an extra payment on the bill that is at the top of your list. Do this monthly until that bill is paid in full.  Now take the money you were using for that bill and start applying it to the second item on your list.  Continue this until all of them are paid off. 
  4. Cutting expenses and making the payment.  If you are already in debt, how are you going to find money for an extra payment?  Well, some sacrifices will have to be made.  Cutting back on extras like trips to Starbucks, entertainment and eating out can free up cash that can go toward that extra payment each month.  Cutting Monthly Expenses
  5. Prepare for the Unexpected. Sometimes life is a struggle and unexpected challenges such as car repairs or medical expenses will pop up from time to time.  As you cut expenses and start to save money, set up an emergency savings account just for these occasions.  That way you will be prepared and won’t have to use a credit card and add to your debt.
  6. Lower your interest rates. Give your credit card company a call to see if they will lower your interest rate. If they say no, shop around for a card with a lower rate and transfer your debt (be careful of transfer fees to make sure the transfer benefits you). You can also seek out a consolidation loan from your bank. They will pay off your debt and you can pay them back at a lower interest rate. How to Lower Your Credit Card Interest Rate
  7. Stick to it!  As you see your debt decrease and see your cash increase, don’t fall back into old spending habits. As you have more money available, put it right into your savings and soon you will have the money you need for a down payment on your first home!

http://www.homesforsaleinmontgomeryalabama.com/Blog/Finding-Your-Dream-Home

http://www.homesforsaleinmontgomeryalabama.com/Blog/Energy-and-Money-Savers-for-Winter

http://www.homesforsaleinmontgomeryalabama.com/Blog/Mortgage-Tips-for-First-Time-Homebuyers

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3 Mistakes First-Time Buyers Make (and How to Avoid Them)

Wednesday, May 24, 2017
by The Hat Team

There are a few mistakes that many first-time home buyers make. Here are three of the most common mistakes and how you can avoid them when purchasing your first home.

Mistake #1: Assuming your credit is good.

The information in your credit report determines whether you can get a loan — and how much interest you will have to pay – so it pays to be certain your credit reports are accurate.

Check your credit reports for free from all three credit reporting companies — Equifax, Experian, and TransUnion — to make sure everything is correct. If you find errors, contact both the credit reporting company and the information provider (the person, company or organization that provided information about you to a credit reporting company) involved in the errors and ask them to fix the credit report errors.

Mistake #2: Getting pre-qualified, not pre-approved, for a loan.

It’s far better to be pre-approved for a loan than to be pre-qualified. Here’s why…

With pre-qualification, your lender does a preliminary evaluation of your ability to pay for a home and gives an estimate of the mortgage amount they’ll give you. The lender does not verify the information you provide.

Mistake #3: Allowing emotions to influence your decisions.

Buying a home is an investment. It needs to be treated as any other investment. You don’t buy stocks because they are pretty and you shouldn’t pick your home that way either. Make sure the home you buy fits your needs and allows you room to grow over the next few years. As with any sound investment, time is the key to a good return.

If you are a first-time home buyer, I would be happy to help you find (and get the best price for) your first home.

Courtesy of Montgomery AL Real Estate Expert Sandra Nickel.   

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