It’s called “The American Dream”; the desire to own a home of your own. The reality is while many may dream; many more feel it’s an unobtainable dream to have.
They’ve been hit by hard economic times, lost their job, seen their credit rating drop and their income drop even more.
It’s not unusual for people to ask is it plausible to be able to buy a home if I have a bad credit rating and/or if my income isn’t very high? The answer isn’t exactly cut and dry but there are steps that you can take to make owning a home a high possibility.
First Step – Get a copy of your credit report and be sure it’s accurate. Dispute anything that should be removed and try to fix any issues where the company/person you owe will work with you. It will take sometimes up to a year or more to get your credit in decent shape and then another 6 months minimum to keep it up. The plan is that it all takes time so don’t expect to have instant good credit within a month or so. Once you get that credit in shape learn how to begin creating a positive credit score without getting into trouble owing too much money.
Step Two – You’re going to need a down payment in most any condition; exceptions are special government loans available to veterans and some low-income programs depending upon your state or even local areas. In either case, even if you should be lucky enough to not need a down payment you’re going to look better to a creditor and be in better shape if you have money saved up. In most cases you will need a 20% down payment but that can vary, once again, depending upon the lender and/or your location or programs you utilize.
Third Step – It’s not always just a down payment you need. You generally will also need to have money to pay for fees such as lawyer’s fees, taxes, points, etc. that can add up. Be prepared. In most cases a typical mortgage will not roll these fees into your loan and it is an additional part of cash you have to come up with up front along with your down payment. Again, if you qualify for a program or loan that doesn’t require 20% down then you will have to come up with less but typically there are fees involved and taxes that you will need to save for.
Be Realistic – Realistically you cannot expect to come up with these sums money in a matter of a year or so unless you have an unexpected windfall. Saving for this amount of money can take anywhere from a few years to five or more years. Once again, if your situation is one where you have bad credit and a low income you have to be realistic about how fast you can change things.
There’s nothing wrong with having to wait. While you’re working on getting your credit rating to move higher and you’re saving money you can also research programs available in your area that may be beneficial. Call your local HUD office and even some Realtors and ask what programs may be available to help low income people to help them buy houses. You may be surprised at the programs offered and remember these programs can come and go quickly. They can also change often so if you make $1,000 too much to qualify for a program this year, don’t give up because by the following year they may have made changes that allow for a slightly higher income. If you really want “the dream” be determined to do what you need to do to get it.
Once You’re Ready – Once you’ve reached the point where your credit is “acceptable” you may be able to qualify for a loan. Many Realtors are very good at what we call “creative financing” in which they have unique or a-typical ways of finding lenders who will take a slightly risky borrower. At this moment in the market lenders are being very particular and are not as free as they once were with lending money to anyone that’s even a slight risk at times. If this is the case ask your Realtor if they have any ideas where to start and how to find alternative financing. Most have worked in this particular market long enough to know the ropes and have a variety of options that may or may not work for you.
In some cases it can even be a “temporary” style of lending where once you have had a perfect record of paying your mortgage payments for a year or two or three you can get refinanced by a more standard style of lender at a better interest rate.
Finally – Sit down with a Broker and discuss your options. Work out a plan of how you can repay a mortgage of a particular amount. The Broker should be able to tell you, given your income and your debt, how much you should be able to afford. You need to feel comfortable with that number yourself though and be realistic. Sometimes the figures can look as though you can easily afford a fairly high payment when the reality is that if you’re not comfortable with that amount or feel you will be “house broke” it’s just not a true realistic approach. Tell the Broker what you feel good with for mortgage payments if they’re suggesting higher amounts.
Get pre-approved – (which is not the same as pre-qualified) for a loan. Getting pre-approved is not a guarantee but it is a fairly good and reasonable attest to the fact that you can get a loan from this particular lender for the amount they say. This also lets you and your Buyer’s Agent know what price range to look in when you begin house hunting.
In The End – In the end you have to be realistic. I know I’ve said this before but I have to impress upon you that with bad credit and low income or even one of these it is not the easiest situation to be in to get a loan. However, remember that where there’s a will there’s a way. For many low income situations there are programs like Habitat For Humanity where you put in “sweat equity”; meaning the sweat and work you put in on building your own home helps you “pay” for your own down payment so to speak.
There are also programs from various government agencies that can help with down payments, match down payments, or provide complete down payments depending upon the program. Many churches and non-profits offer programs that are either funded by the non-profit themselves or in some cases are state or federally funded to create housing opportunities for those who may not typically qualify. Again, where there’s a will there’s a way; especially if you’re willing to work for the opportunity to have the American Dream.
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