How To Own A House With Poor Credit Score?

The coronavirus pandemic affected millions of people around the world. One of the most significant impacts that Covid-19 had was on people’s financial status and credit scores. This has led banks and other lenders to re-evaluate the risk of applicants looking for mortgages and other financial help.

Even though Covid-19 has our financials in great trouble, it should not hinder your dream of owning your first house. In this article, we will discuss ways on how to buy a home even with a poor credit score.

How can you afford a house even if you have a poor credit score?

Be willing to pay higher interest

Even when you have a poor credit score, banks will approve your housing mortgage. The only catch is that you need to pay a higher interest.

Banks are prejudiced against borrowers with poor credit scores because they pay dues late or not pay at all. They often structure the mortgage agreements with higher payable interests so that they will be insured when they lend money.

Come up with a larger down payment

Aside from paying higher interests, you can also pay a larger down payment. Banks and other lenders are more inclined to lend you money when you do so. This will reduce the balance you have to pay later on and reduce the interest rate.

By using more of your money to pay for your house, you can convince lenders that you will not evade them. You also expose yourself to a higher risk, which, in turn, lowers the risk of lenders.

If you can pay 10% or higher of your house’s total price, your approval rating would be higher. Your low credit score can become a minor dent to your mortgage or loan application.

Apply for an FHA loan

You can also apply for a Federal Housing Administration (FHA) loan to finance your house.  The FHA has less strict requirements for their loans, and they accept people with low credit scores.

The trade-off with FHA loans is that they charge hefty penalties when you miss payments. Also, compared to bank mortgages, FHA loans have higher monthly dues. For example, they will charge you up to $80 a month for a $100,000 mortgage.

Look for a rent-to-own house

This will be the best step for you if you have a low credit score and low financial capability. Finding a rent-to-own home will not force you to borrow and pay more dues. All you have to do is look at property listings that focus on rent-to-own homes that fit your needs.

While it is true that the rent-to-own process is different for every case, there are three matters always involved:

• Purchase price. This would be the basis for your house’s cost and for your rent payments. The landlord of the house can rely on the purchase price as a reference when you decide to buy the house fully.
• Rent Payments. The rent amount would be higher than rent-only houses. Part of your high rent payment monthly would become credit when you buy the house later on. This can also help the landlord earn high income but give you greater consideration.
• Maintenance fees. You will also have to shoulder the repair, maintenance, and other housekeeping fees while renting and once you assume ownership. They may also charge property taxes to you as part of a rent-to-own agreement.
• Option money. This is similar to the down payment, but what makes it different is that this is required. The option money is the consideration that the owner takes to let you buy and own the house. The amount is usually part of the purchase price or the total selling price of the house.
• Lease term. This indicates the rental period you should undergo. Once the lease period ends, you can take the option to purchase or the option to back down.
• Closing. This process seals the deal and lets you assume ownership of the house. However, the closing date requires that the purchase price should be fully paid before you assume ownership. As mentioned above, option money and the rent payment can be used as credit and considered as part of your full payment.

Considering all of these, it is highly recommended that you consult a legal counsel. You should also scout rent-to-own houses from credible websites or listings. 

The critical thing to remember with rent-to-own agreements is that everything is negotiable. You should not disregard your best interests just to push for approval. Make sure that everything is favorable for both ends before signing anything.

Act on your best bet

Finding rent-to-own houses would be your best chance of owning your dream house since Covid-19 has affected your finances and credit score. Regardless of your credit score is low, rent-to-own agreements can help you with your dream house without paying for more. Of course, you can always sell your dream house for more to regain some money, later on.