So, you have decided that 2012 will be the year that you will stop renting and take advantage of this current market of low priced homes and low interest rates? Buying a home with average to poor credit requires you to first do four things.
1. Check and monitor your credit
The price tag of a home will be one of the most expensive in your life time. Before you start that search for your dream home, the first thing is to secure your mortgage financing, as a “pre-approval letter” from your mortgage lender is required when you make an offer on that dream home.
If your credit is bad or if you have a few credit reporting issues ie: items or amounts being wrongly reported on your credit, these items are called “derogs” and they will pull down your credit score. You want to be proactive with your mortgage lender by bringing these issues up to him or her first, as opposed to being reactive when your lender states to you what you already had a knowledge of, but you try to pretend that you did not.
The more you know and take to your lender, the less time is wasted for you. If you disclose this information first and if the lender knows upfront, they will not be wasting time pulling your credit report, as multiple credit inquiries on your report can also have a negative impact. If you are more proactive, the lender will know if they have a mortgage program for your credit criteria prior to pulling your credit report.
2. Work on cleaning up your credit and enroll into a Buyers Workshop Class
Address your credit issues prior to putting a contract on a house is the first and foremost thing to do, this process will increase your credit score and lower your interest rates, making it possible to afford a little more house or maybe that perfect house you have your eye on. Consider contracting a credit repair services for those challenging derogatory items that are pulling your scores down, these services are often worth the money any your time to legally have erroneous items removed.
A Homebuyer’s Workshop is not just for the first timers, they are also encouraged if you have been a homeowner and have gone through a foreclosure or short sale. The topics generally discussed in these workshops are,
* What Are Your Rights As A Home Buyer-Brokerage Relationships
* Mortgage Prequalification-How much home can you afford
* Loan Programs-Which of the various loan programs best suits your needs
* Home Warranties-What are they and what do they protect
* Termite Issues-What you need to know about termites in Georgia
* Lead Based Paint Concerns-How does it affect me
* What is Title Insurance and Do I Need It
* What are Closing Costs and Who Pays Them
* What is the Sellers Property Disclosure
* How do schools figure into the equation
* What does a Home Owners Association Do
* Home Buying Tips
* The Contract and Important Timeframes
3. Get a Buyers Agent
A buyers agent will work exclusively for you, as the Sellers Agent will be working for the seller. Some real estate offices allow “dual agency”, that’s when an agent from the same office will be assigned to represent you, but still to whom do you think the loyalty will be to?
4. Get a mortgage lender.
Mortgage Broker or your Bank?
Some people may argue that the bank who has all your banking accounts and history will be your best place for a mortgage loan; but keep in mine the bank who has your money is not necessarily the best place for your mortgage loan, especially if you have bad credit. A mortgage broker generally are more creative with financing credit that has issues.
There is a concept that the bank you have all your accounts with would be your best bet for a mortgage loan, because there aren’t a lot of add-on fees and middlemen who touch your loan and get paid for it. The employees generally don’t get a commission, just an hourly rate, so they aren’t looking for ways to charge you extra. But this very bank that has all your checking accounts and money history are also the ones that will definitely decline your mortgage loan request if you have challenged credit. Being that the employees work on hourly rate or salary, they are not aggressive nor motivated enough to find a mortgage program for your credit criteria the way a mortgage broker would.
A mortgage broker have access to several different Bank’s programs for different credit criteria, where as a major bank may not. Although most have a minimum credit score of 620 or higher, some banks are beginning to relax the minimum score requirement to a 580. Beware, the lower the credit score, the more money down is required and the interest rate will be higher than the par rate.
Having a low credit score will not keep you from home ownership, but it does mean that you will have to buy a less expensive house than if your credit score was higher. There are several credit repair programs to assist with getting derogatory issues off your credit report, especially items that are reporting incorrectly. So first begin your journey to home ownership by working on your credit.