Image via Unsplash; Article by Alice Robertson.
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Homeownership continues to be the American dream, even for those with less-than-stellar credit. If you are in this boat, then consider these tips from All Racing Products for improving your credit report, saving for a down payment, and getting your piece of the American dream.
Focus On Fixing Your Credit
If you have poor credit, the first thing you need to do is review your credit report and get your finances back on the right track. When reviewing your report, you want to check for errors. If you notice any false charges or loans you didn’t take out, report this to the credit bureau immediately.
Next, you want to use the information on your credit report to decide what cards or accounts you need to pay to erase any delinquencies. There are several strategies for paying off debts. One is to tackle the largest debt first so you get a big chunk out of the way. The other strategy is to have quick wins by paying off the smallest debts first so you can feel like you are really making an impact.
Either way, you’ll want to watch your spending during this time and avoid taking out any new loans or applying for credit cards.
Saving for a Down Payment
There are a few tactics that you can try to secure a loan for a home even when you have poor credit, and one of the best methods is by making a sizeable down payment. The bank will be less hesitant to provide a loan for a borrower with poor credit because your credit history shows that your ability to pay back loans can be erratic.
A more significant down payment will provide good faith to the bank, and if you are approved, you will also have lower payments that will be easier to pay on time, which will, in turn, rebuild your credit.
If you are short on cash, then consider picking up any number of side gigs, from dog walking to tutoring children online. Once you have more money coming in, create a budget, including all streams of income you have along with all recurring expenses. Determine what expenses you can remove from your budget and where you can save money. For instance, you could stop making daily coffee runs and going out to eat for meals, and instead, make coffee at home and pack your lunches.
Also keep in mind that if you operate a home-based business, you can save with tax deductions for certain business expenses. These savings can free up additional cash to help with your home purchase.
Other Options
Even if you cannot afford the larger down payment, all is not lost. There are other options and tactics you can try. One option is to find a cosigner with good credit to sign the loan documents with you. On the downside, you won’t own the house individually, but you can get the home loan you desire by having someone else that the bank can trust.
You can also try an alternative loan option. For instance, instead of conventional loans, you could look into a Federal Housing Administration (FHA) loan, which is for first-time home buyers, and you only need a credit score of 580 to qualify. If you are active military or a veteran, you may also qualify for a VA loan, which can allow you to get a loan without having to put money down. Best of all, 30 year VA mortgage rates are likely to be much more competitive than conventional or even FHA loan rates.
As you can see, by saving money, creating a budget, and looking at alternative loan options, you can get the perfect home for you and your family.
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