How to Fix Your Credit to Buy a Home
Your home is probably the largest investment that you’ll make in your life. If you are ever in a position to purchase multiple homes, the money and time you’ll spend on your biggest investment goes up exponentially. For all of the excitement of buying a new home, you won’t get anywhere in the process if your credit isn’t up to par. Unless you scrimp and save for years, or even decades, to pay for your home outright with cash, a mortgage is the best and most conventional way for you to afford a new home, and better your credit. Unfortunately, without good credit, your options for a mortgage are very limited. While it’s far from impossible to purchase a home with mediocre credit, you can and should treat your credit with the same respect that you treat the other elements of your financial future.
If your credit is imperfect, or if it’s bad, there are options that will help you get into a better position. Before you start trying to figure out whether you want carpet or hardwood, make sure that you’ve spent plenty of time, preferably a couple of years, taking care of your future by taking steps to raise your credit score. Even the simplest of steps, taken over a couple of years, can change your situation dramatically, making the home you want more accessible.
Pay Every Bill on Time, Every Time
Fortunately, for most of us, this goes without saying. What most people don’t know is that, depending on the company, one unpaid bill could take you from average credit into a spiral of debt. If a bill is left unpaid, you may find yourself the subject of constant calls from collection agencies. Collection agencies are organizations that have purchased your debt from your service provider, and profit from their fees for obtaining your inflated payments. Calls from debt collectors can be frequent and conflate your stress level, so save yourself the trouble by paying your bills when they’re due. If you’re in a difficult financial situation, remember that it is better to pay a little something on your bills than nothing at all. If you’re stretched to the max, and truly unable to make a payment, contact your service provider. There is likely an established protocol for your exact situation – you’ll be far from the first person they’ve encountered who’s been unable to make their payment.
This is a particularly important habit to maintain: once you’ve got a mortgage, missing a payment on your mortgage can carry dire consequences. Your lender will send you a series of letters detailing the money that it is owed, and this will inevitably include fees for a late payment. Don’t worsen your debt, or put yourself in a predicament by missing your payments.
Address All Debt
Debt is weighed in your credit rating, so if you have a lot of debt, it will impact the type of mortgage you can get, and for how much. For millennials, this can be a complicated matter: so many millennials are struggling under the weight of student loans, and a percentage have defaulted. Defaulted loans, including mortgages, have a damaging effect on your credit, and can cause you to lose your assets. Despite the number of young people struggling with student loan debt, medical debt is overall constitutes most of the overall debt in the nation.
Contact a Credit Counselor
This might be the first thing that you’ll want to do on your journey to homeownership. Connecting with a professional whose job is to help you with your credit is a great way to establish a plan, and help you stay on track. Whether or not you choose to see a credit counselor, you’ll need discipline, and patience with yourself. There will be a fee for credit counseling services, but if you’re not sure of what to do to help yourself, your credit counselor can answer your questions, and show you how you can eventually afford a home.
Open a Line of Credit
While this may sound counter-intuitive, this is actually a quick and easy way to build your credit. If you’re able to get a regular line of credit, not only will you be able to build your score by using your credit card and paying your bill on time, but you will probably be eligible for other benefits that come with your new card. Some cards offer airline points, cash back, or award discounts at local and national establishments. With excellent credit, you will be able to qualify for a card that has a high spending limit, and can be used abroad.
If you’re not confident that you can manage a regular credit card, or if you don’t qualify, you will probably qualify for a secure card. A secured credit card requires a deposit, usually starting as low as $500, which will serve as you spending limit for the life of the card. You can increase your rating by giving your financial institution more to raise your credit limit, but you won’t be able to go over the extra sum you’ve paid. It is still absolutely essential that you pay your credit card bill in full and on time, but you will have a chance to prove yourself to your financial institution, as well as have that extra card for emergencies.
Consider FHA Loans
FHA Loans, or Federal Housing Administration Loans, are loans that are subsidized by the government to allow lower-income people or people without perfect credit to afford to purchase a home. FHA loans have been helping people buy homes and build credit and equity since the Great Depression, when money was as scarce as hope. FHA Loans are able to help so many because though they require a higher down payment, they are available to people whose credit rating is at or below 500. Just as with a traditional mortgage, an FHA loan is there to help you pay for your home, and you will treat it as you would any other mortgage. Credit counselors, financial institutions, and local real estate agents will be able to tell you everything FHA Loans, and why they’ll work for you. FHA Loans are also available if your credit is good, and you’d like to use a government program. Raising your credit score is essential to scoring the home of your dreams, and even if you’re not ready to move in tomorrow, you can get there with care and discipline.