If your credit score isn’t the best you’ve probably already decided you’ll never be able to buy a home until your credit is better. While this isn’t entirely true, bad credit certainly makes the process more difficult. Having a good credit score generally means the loans you get will have lower interest rates (thus costing you less over the life of the loan), while bad credit scores generally have more oppressive terms (costing you more over the life of the loan). The bottom line though, is you can get a home with bad credit (make sure your credit situation is the result of life throwing you curveballs, and not awful finances though – you do not want to get foreclosed on).
As a threshold matter, the best credit scores are over 750, good credit scores are between 700 and 749, if you’re under 700 – well, lenders are going to raise an eyebrow (but since when has that ever stopped anyone?).
Just because your credit score is below 700 doesn’t mean you should give up. More often than you’d think, creditors (think Macy’s if you have a Macy’s card) report inaccurate information to credit reporting agencies like Equifax, TransUnion, and Experian (coincidentally, this may result in a claim under the Fair Credit Reporting Act [“FCRA”], or state versions of that law). The first thing you should do is check your credit report to make sure everything is accurate (you are entitled to 1 free credit report per year, take advantage of that).
While there are loans for people with poor credit (check out FHA loans), the best bet in the long run is to find a way to pay more up front. The less a lender is being asked to loan you, the less your credit matters (and the less you will pay over the long-term, because you will have high interest rates). Shoot for 30% down if that’s possible. The best part, once you’ve paid down your mortgage, your credit will probably be over 700, making your next home purchase much easier.
At the Chernov Team we know that knowledge is power, and knowledge of how to purchase a home notwithstanding poor credit is powerful knowledge indeed; many people believe the only way to build wealth is to own property, poor credit shouldn’t prevent you from realizing your dreams. At the Chernov Team we understand that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.