Trying to buy a home now with a bad credit score; or, rebuilding your credit first, then buying a home? MyBankTracker unwinds the dilemma.
If you buy a home now and you have bad credit, you will only qualify for a loan with a higher than normal interest rate.
That translates into costlier monthly payments. On the other hand, if wait to buy until you improve your credit score, you might miss out on today’s very low rates, which will also translate into costlier payments.
Here is some guidance to help you find your way out of this dilemma:
Building better credit helps you both now and later
If you wait to buy a home until your score improves, the interest rate you can get might offset any rise in overall interest rates.
If, however, you’re sure you want to buy a home now, there are quite a few ways to quickly improve your credit score before you apply for a mortgage — even within the next 60 to 90 days.
One way is to borrow from your 401(k) account to pay off half or more of what you owe on your credit cards.
You’re allowed to borrow from your 401(k) only if you use it as a down payment on your first home, so technically, you can’t use it to pay your credit card balances.
You can, however, pay down the balances with some of the cash you were planning to use for the down payment, then replace that cash with the borrowed 401(k) money. You will still have to repay the loan, but better to repay the amount to yourself than to the lender.
MyBankTracker has a number of articles with advice on how to improve your credit score. To start, read this article.
Here’s an article that explains what determines your credit score, so you can get an idea of which of your debts to target when aiming to improve your score.
The worse your credit score, the more expensive your mortgage will be. That’s guaranteed.
Waiting to buy a home may cost you more if rates go up in the meantime, but that’s not guaranteed.
Whether you decide to buy now or wait, your best option is to improve your credit score as soon as possible and save yourself thousands of dollars in the long run.
Who might lend you money now?
Many, but not all, lenders will consider someone with a credit score below 620 if the loan will be guaranteed by the FHA or others.
So, if you want a home now, contact some lenders in your area to see if you qualify for a guaranteed loan program, such as these:
Guaranteed Loans for Borrowers with Low Credit Scores
|Type||Score as low as:||Other information:|
|Fannie Mae-guaranteed||620||in 500s in some cases|