Buying a home can be a daunting task; financing a home can be downright painful.
However, there is hope, and with a little preparation one can avoid many of the problems that can arise. The most important way to begin is to check your credit score ahead of time. This score is what all lenders will look at it when you apply for a loan. It is designed to measure your credit worthiness. Your credit score can either save you money, or cost you money.
For example, if your credit score is low (under 600), you will have limited loan options available to you, and limited banks or institutions willing to finance you. You may need to search out “high risk” mortgage brokers. These “high risk” brokers also come with higher fees.
Loans from high risk lenders have additional requirements. You may have to provide extra documentation, such as reference letters, canceled checks, additional tax returns, etc. There is no limit as to what a potential lender might require from you, and sometimes this information can be difficult to track down.
The difficulties dont end there, however. Lower credit scores generally mean higher down payments. If you have a lower credit score, it is best to have this money set aside for purchasing a home. If you don’t have this cash available, you may need to seek out other options, such as pulling money out of your 401(k).
According to broker/owner of Century 21 GoldFire, determination will always win out.
“If someone wants it bad enough, there are ways to make it work.” She recommends working on one’s credit (or FICO) score at least 3 months in advance of buying a home. Making on-time payments, and keeping credit balances as low as possible are the best ways to raise a score. This is the time to fix errors on your credit reports. Since that process can take 1-3 months, it is best to start right away.
Century 21’s top realtor states, “I have had people that didn’t realize that they can take a loan out of their 401(k)’s for the purpose of buying a home. I have also had clients who have found they can turn to a relative for a down-payment gift or loan, or even have them co-sign if needed.”
If your score over 650, you are in great shape! You will have more options, and will you qualify for a lower interest rate. This can save you money up front, as well as for the life of the loan.
It definitely pays to have your credit score in the best shape possible for buying a home. However, if you happen to have a lower score, don’t panic! Start your three month repair process, and start talking to lenders. If you want it bad enough, you can make it happen!