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Buying A Home With Bad Credit Buying a home with bad credit - There are many options available for consumers looking to buy a home with poor credit. The first step that needs to be taken is to call a mortgage broker. Contacting a mortgage broker will let you know how much of a home you qualify for and provide you with a pre-approval. A mortgage broker works with hundreds of different lenders throughout the nation which allows him or her to be able to access thousands of more home loan programs than a traditional bank. What this means to you is a better chance of finding a mortgage lender that will provide you with a loan and a better chance at obtaining a better interest rate. When your credit is poor and you believe it will be an obstacle in purchasing a home, you should take a few immediate steps to help clean up your credit report. Begin by paying your bills on time, every time. This may sound like an obvious answer, but paying the minimum payment every month is better than paying it late or not at all. Owning a home is a major responsibility, so even if you haven't paid close attention to your finances before, make a serious commitment to do it now. Secondly, review your credit report and make a list of the issues that need to be dealt with. Your mortgage broker can help you to do this, outlining a clear plan to improve your credit. You have the option of hiring a credit repair company and you can also ask your broker for a reference for a reputable firm. Your mortgage broker may already have a relationship with a trusted company. Many people assume that their credit is worse than it is. Before assuming your credit score is too bad to buy a home, contact a mortgage professional. He can pull your credit report and review it with you. Then you will have a good idea what your options are. Buying a home with bad credit is more common than you might think. As people's financial situations turn around, they often begin thinking about buying a home. Their credit scores and histories can take years to catch up to their new financial situation.
Your initial interest rate will be higher than if you had good credit. However, your mortgage professional can help you set up a plan to improve your credit score and refinance to a lower rate and payment in one to two years. You want to look for brokers who specialize in helping those with bad credit or credit challenges. There are programs available now with 100% financing for scores lower than 550. If you're below (sub) 500 in your score then you will probably need an equity based lender where they loan on the equity in the property and are not score driven. Believe it or not, if you have less than perfect credit you are part of the majority and that being said, there are probably more lenders and programs available to you... It Still Makes Sense To Buy VS Rent - Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these "echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices.
Is there a "bubble"? The simple answer is "no". Even if interest rates move a bit higher, it wont be enough to cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally wont stop someone from purchasing the home of their dreams...but if they feel their job is in jeopardy, it might be enough to stop them from making a move. So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.
It is important to note that housing tends to be localized. So if the job market in your area is weak, housing prices could under perform the rest of the country.
But this talk of a housing bubble has been going on for a few years now, and those who were unfortunately victimized by continuing to rent instead of purchasing a home are painfully mulling over their missed opportunity. But is it too late? Even with the more moderate levels of appreciation expected…procrastinating on that home purchase could cost you a bundle.
Lets look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.
And speaking of having nothing to show for it - how about any improvements you might make to a rental property? Its not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what…all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.
With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payment, the very same money could have been used towards home ownership. Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment - including property taxes and insurance - of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth. Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a $300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you have a whopping $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm, the result would be $77,000 of additional net worth.
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Dont be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction.
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Information listed above is to be used for educational purposes only and is not guaranteed
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