With Bad Credit How To Buying A Home

Buying a home with bad credit seems like an impossible achievement to many of us. The assumption is that since your credit rating is below average due to various reasons, no lender will want to 'touch' you as far as buying your dream home is concerned.

While buying a home with bad credit may not be very advisable, it is now possible for people who never thought they could qualify for a mortgage to buy a home. Mortgage companies are businesses that need a constant flow of clients in order to survive. These companies now realize that they need to come to some kind of compromise in the area of credit scores or they stand to lose a good many potential customers. To increase their customer base, and therefore their income, mortgage companies have relented to some degree and now let people buy a home with bad credit.

Mortgage companies use your credit reports and rates to determine your credit-worthiness - the assumption is that if you've been able to take care of your debts in the past, then in all probability you'll be able to take care of making the mortgage payments. When you have a bad credit rating, mortgage companies tend to be a little wary of you, and will usually penalize you by charging you higher interest rates, and loaning you a smaller amount of money than they would if you had a good enough credit rating.

To buy a home with bad credit, you need to meet some minimum criteria, which include evidence of a steady income for two years prior to your application, and some good showing on your credit report. The good showing could really be anything, including paying your utility bills regularly and on time - anything that will show the mortgage companies that you can and will make the payments when you say you will.

Of course, buying a home with bad credit will have its downside. As far as the mortgage company is concerned, you are a 'risky' investment, and they will do whatever they can to protect themselves against loss. This means that the interest rate that you will be paying will not be the prime rate as would be the case if you had a good credit rating. In actual fact, it will be well above the prime rate in most cases, depending on how bad the credit you have is.

You need not despair, though, since should you prove yourself to be worthy, the mortgage company may be willing to change the interest rate that you have. For instance if you have a low credit score right now and they give you the home, the interest rate is likely to be very high for about five years. At this point, you could approach the mortgage company and tell them that you have made every payment on time and the loan can then be refinanced to reflect a better interest rate.

Buying a home with bad credit is simply a matter of making certain that you can and will make the payments when you say you will. This is really the only thing that the mortgage companies are worried about. If you are willing to make the payments when you say you will and in the specified amount you will most likely get your house.

When deciding to buy a home with bad credit, it would help you to analyze the pros and cons of either buying the house right then, or deciding to wait a little longer while you clean up your credit report and improve your credit rating. However, at the end of the day, it will be your decision whether or not to buy your home with bad credit, given what you now know about the process.

By Carol Leah