How To Buy a Home With Bad Credit
Many people who have bad credit assume they will never own a home or qualify for a mortgage. Therefore, they will rent and end up making monthly payments to the landlords. Taking this similar amount of money and using it to pay off a mortgage for your home is a much better use of your funds. Has bad credit been preventing you from owning a home? Here are tips to help you buy a home with bad credit.
Find a Bad Credit Mortgage Lender
With a credit score below 600, Canada’s major banks will not approve you for a mortgage loan. Instead, you will have to look for financial institutions, which work with people who do not have ideal credit scores.
Save for Down Payment
A mortgage lender will assess various details when considering your mortgage application such as income and debt level and your credit score. With a risky credit profile, you may be required to pay a larger down payment. You need to have at least 20 % of the loan amount. Keep in mind there are other costs involved such as attorney’s fees, title service fees or survey fees.
Prepare to Pay Extra Fees
As a first time homebuyer, you do not have any mortgage record payments, so your default risk will be higher. Therefore, you can expect to pay higher monthly payments on a high interest loan. A mortgage can take years to pay off completely so this could add up to thousands of dollars. You must make sure that you can afford to finance your loan while taking into account that interest rates can change with time.
Work With a Real Estate Agent
You are a first time homebuyer so it pays to put an experienced buyer representative to work for you. An experienced real estate agent works has your best interests in mind; he or she will help you find a home that is within your price range and meets your expectations. Be realistic about what you can afford; since you have bad credit, you do not expect to be considered for big loan. Your agent can help you determine whether you can actually afford to keep up with the monthly payments.
Obtain a Pre-approval
A preapproval helps you know what you what you can actually afford and where your limits are. Plus, most sellers prefer to work with buyers who have been pre-approved for mortgage loans.
Make a Purchase Offer
Select an offer price based on the amount you think the seller will accept. If you are considering a lowball offer, make sure that your agent has confirmed the price. The seller may issue a counter offer; however, this should not prevent you from negotiating. Keep in mind there may be multiple offers if the home is located in an ideal location.
Close on Your Home
Ensure a home inspection is conducted before closing the sale. Make sure the closing date is convenient for both parties. Ensure that you have paid the closing cost, which could include title fees, appraisal fees and attorney’s fees. Once you have closed the deal, you can move in and enjoy your first home!
Take time to work on your bad credit, it will help in the long
run. Make sure you work with a realistic budget to prevent bad credit from
sneaking up on you. Ensure that you pay your monthly payments on time; it works
to improve your credit score.
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