Be a Luxury Homeowner: How to Buy a House with Bad Credit in San Diego

Luxury Homeowner: How to Buy a House with Bad Credit in San Diego

Do you dream of being a luxury homeowner in San Diego, but don’t believe you can with your current credit score? Learn how to buy a house with bad credit here.

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According to the US Census Bureau, 64.8% of Americans are homeowners. Owning your own home is part of the American dream.

And there are many reasons to own a home. For many, it means they've achieved a certain level of success.

Others wish to elevate their social status, become part of their community or live closer to family and friends. Then there are those who view it as a good investment or a way to improve their living conditions. 

But many people feel that because they have bad credit, homeownership is an impossible dream. Luckily, that's not always the case. 

If you want to know how to buy a house with bad credit, keep reading. We're sharing with you how buying a house with bad credit is possible. 

How to Buy a House with Bad Credit: Gather Your Information

In order to see if buying a home with bad credit is even possible, you have to begin by gathering up certain pieces of information. Lenders want to take a look at your financial history to ensure you're a good risk.

Start by checking your FICO credit score. You're entitled to view your credit score for free once a year. 

You'll have three credit scores, one from each bureau. The middle score is the one lenders use. 

Make sure everything is accurate on all three reports. Dispute anything that isn't correct.

Also, if you have a bad credit score, it's not the end of the world. There are ways to clean up your score so you have a higher chance of becoming a homeowner. 

Get Credit Counseling

Buying a home with bad credit is easier when you have help and a good support system. One way to get that is by contacting a HUD-approved housing counseling agency. 

Set up an appointment to speak with a housing counselor. They can tell you all about the special financing programs for people with bad credit that are available in your area.

Next, your counselor will help you locate a homebuyer workshop. Often, this course is required in order to qualify for a bad credit loan. 

It's usually a free course and you can either take it online or find one locally. You'll receive a certificate upon completion that you'll need to provide when applying for a loan. 

Find the Best Loans for People with Bad Credit

You'll need to find a lender who works with people who have bad credit. Look for lenders who are FHA-approved (Federal Housing Authority). 

You'll need a credit score of at least 500 in order to qualify. You'll also need to put 10% of the money down. 

If you have a FICO score over 600, you may not need to go through FHA to obtain a loan. Also, the requirement is usually around 3.5% money down to get a loan for credit scores over 580.

Requirements to Obtain a Loan

For an FHA-approved loan, you'll need to make a down payment. However, you can get that money from friends or family as a gift. 

Your debt to income ration also needs to be under 43%. And you need to prove you're gainfully employed. 

Lenders also look at your credit score to see if any late payments were made in the last 12 months. Make sure you have a steady payment history before you apply.  

Lenders Have Their Own Requirements

Keep in mind, lenders have their own set of credit requirements. And not all of them are willing to work with people who have low credit scores. 

Do your homework to ensure you find a lender willing to provide you with a loan under terms you understand and agree with. And look at several companies before you make your decision.

There are quite a few lending companies that provide loans for bad credit. And even some that find those companies for you based on your needs. 

Opt for Increasing Your Down Payment

If you're in the unique position of having bad credit but you also have cash saved up, you may be in luck. Some lenders may approve you if you're willing to make a larger down payment. 

That's because, the more money you put down, the less of a risk the lender takes on your behalf. 

Beware of the Fine Print

While interest rates are at a record low right now, they're still much higher when you have bad credit. Some lenders go as high as 35.5%. 

Also, some lenders won't allow you to pay higher monthly payments, refinance or pay off your loan early. Make sure you read and understand everything before you take on a loan you can't pay back. 

Get Pre-Approved

Just because you find a lender willing to work with you, there's still more to do. Before you're pre-approved, your loan officer needs to verify your credit score, income, and bank documents.

Get all of this ready before you search for lenders so it's easier for them and you to get approved quickly. Once this happens, you'll get a pre-approval letter from the lending company.

Once you receive your pre-approval letter, you can begin searching for your dream home. 

What Happens if You Don't Qualify

If you don't qualify for even an FHA loan, all isn't lost. There are steps you can take to improve your credit score. 

For FICO scores under 550, if you take steps to improve your credit and pay down your debt, you can improve your score in six months or less. 

Start by reviewing your credit report. Make a note of everything you need to improve to increase your score. 

Fix any errors. And start paying down your debt while trying to save money. 

While it sounds hard, it's not impossible. Start by paying more than your minimum balance and see where you can cut costs. 

Find a Realtor

Buying a house in California can be tricky without a great realtor. Find someone who knows the area well and has a great success record.

Be sure to ask plenty of questions so you know exactly what you're buying and what costs are involved. The more you know, the smarter decisions you'll make.

Find ways to save money while you're moving into your home.  

Turn Your House Into a Home

Now that you've learned how to buy a house with bad credit, it's time to start envisioning where you'd like to live. Make a list of things you must have in your new home. 

Separate what you can't live without from what you'd like but can do without. Once you find your house, you can make some changes so it becomes your perfect home. 

If you're looking for ideas, we can help. Click here to learn some home decorating tips.