Video:How to Buy a Home if You Have Bad Creditwith Nick Jaynes
Want to know the limitations of buying a home if you have bad credit? Here, see helpful information about the process.See Transcript
Transcript:How to Buy a Home if You Have Bad CreditHi I'm Nick Jaynes for About.com and this is "how to buy a home with bad credit." I'll be using information from the home-buying guide site on About.com.
About Buying a Home if You Have Bad CreditMost people believe if they have gone through bankruptcy, foreclosure or if you just have bad credit, you won't be able to buy a house. This simply isn't the case, but you will pay more for a house than someone who has good credit.Filing bankruptcy usually means a seven-year wait before you can buy a house. Some hard-money lenders might give you a loan six months after filling bankruptcy, but you will have to put 20 to 30% down on the house. The interest rate will also be very high.
Improving Credit to Buy a HomeThere are ways to improve your credit so you can get a fair rate, and buy a new home sooner. The first thing to do is obtain a major credit card. Bankruptcy gives you a fresh start, and using a credit card will slowly enable you to build better credit. Second, show steady employment for one or two years. It is best if it is not self-employment. Third, save a down payment of at least 10% of the house you are looking at. Fourth, pay your bills on time, and avoid any late payments.If you know your credit score here is a quick breakdown according to your FICO score. This breakdown is assuming you did not file bankruptcy or foreclosure, and you are putting a 10% payment down.
More Information About Buying a Home if You Have Bad CreditFICO Score of 600-640 + 1.625% over prevailing rate. This means a borrower with good credit is paying 5.875%, your interest rate would be 7.5%.A 200,000 loan at 7.5% would give you a monthly payment of 1,398.Now let's compare that to someone with bad credit, with a FICO score under 500 + 6.25% over prevailing rate. Your interest rate would be 12%. You would not qualify for a 90% loan, and have to put more money down to get a different loan. Your monthly payment on a 200,000 loan would be 2,057. If you did file bankruptcy you would typically pay an additional 200 dollars per month.
If you aren't satisfied with the rate from a lender, you may want to look at buying a home with seller financing. Land contracts are a viable alternative. It offers no qualifying, lower interest rates, flexible terms and fast closing.
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