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Real Estate Financing a Home When You Have a Poor Credit Rating

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Buying and Financing a Home When You Have a Poor Credit Rating

If you plan to buy invest in and finance a home when you have a low or poor credit rating or low FICO score, the first step is to determine why it’s low and if there is anything you can do about it. Hopefully you can improve your credit score and qualify for a residential low rate mortgage.

Have you had a history of paying your bills late or does your credit report have mistakes? Have you ever filed for and gone through a bankruptcy?

If you have errors on your credit reports, you can easily clean them up by asking the three main credit reporting bureaus, which are Equifax.com, Experian.com, and TransUnion.com to remove the mistakes or errors. If you know your identity has been stolen, you can file a police report and fill out an affidavit on the credit reporting bureaus’ websites to clean up your credit history. Once your credit history is cleaned up, your credit score will begin to rise.

If your problem is that you’ve been late in paying your bills, or there is other negative information on your credit history, the only thing that may help you is the passage of time. The good news is that time eventually will take care of it.

You can start the process of cleaning up your credit reports by checking out your credit reports and scores from each of the credit reporting bureaus. You can do this online by going to www.annualcreditreport.com.

After you learn your credit scores you will want to find out if it’s so low that it puts you in the subprime category. What this means is you’ll pay a higher interest rate plus higher fees to get your real estate loan. Be careful to find out if you may be forced to accept a prepayment penalty, which can be expensive if you decide to sell or refinance before the penalty period expires. Read the fine print carefully. Subprime relates to scores that are under 620 or so depending on the lender.

You may be able to get a subprime loan at a higher interest rate, but it would be much better to spend the next year cleaning up your credit history, and making all of your payments on time or a little early. After you start making payments on time and allow a few months to pass since your last piece of recorded negative information, your credit score will begin to rise.

At this point you’ll be eligible for a much larger selection of better loans and better residential loans or home loans at better interest rates from some of the nation’s top lenders.

Spend this next year while you’re cleaning up your credit, making plans for your real estate financing and real estate purchase. Check out a variety of neighborhoods and schools too if it applies. Know what kind of real estate you or you and your spouse or partner want; a house, townhouse, condominium or even a duplex that you would live in on one side and rent out the other. Try to put away some extra money so you’ll have enough cash for your down payment and inevitable moving expenses. Try to get an idea what your down payment and moving expenses will be.

It may sound like a year is a long time but you’ll need this time to reverse your credit history, find just the right neighborhood and schools, the right real estate, the right real estate financing and save enough for your down payment. Even though you’ll lose a year appreciation, you will save in the long run with the lower interest rates. If you need professional help regarding your current bills and planning for the future residential real estate financing and real estate home purchase you can talk to one of the credit counselors affiliated with the National Foundation for Consumer Credit.