Month: February 2017

Worried couple doing their accounts in the living room

Getting A Home Loan If You Don’t Have Good Credit

It is possible to get home loans without a good credit score. However, there are some steps that you must take to make sure you can get a loan. Most banks are hesitant to lend to someone who has a bad credit score. In some cases, you could pay a higher interest rate than clients with a better credit score. One option if you have a bad credit score is to go through the FHA. The FHA (federal housing administration) doesn’t charge excessive interest rates to people with low credit scores.

The Federal Housing Administration:

The Federal Housing Administration offers loans through two organizations. These two organizations are Fannie Mae and Freddie Mac. They both offer conventional mortgages, and it’s possible to get them with a credit score that is below 620. There still are some requirements that you’ll need to meet to get a loan from them if you have bad credit.

The down payment required for federal housing administration loans is relatively low. In fact, it’s possible to pay a down payment as low as 3.5% of the cost of the home. If it’s possible, it is better to pay a larger down payment though. With a larger down payment, you’ll be able to pay off the mortgage more quickly.

Furthermore, the federal housing administration makes it easy to apply for loans. There isn’t much paperwork involved and an approval can be given within 24 hours.

If You Are A Veteran, There Could Be Additional Options:

You may be able to get a VA loan if you have been in the military. In order to get a loan from the VA, it’s typically required to have a credit score of 620. If your “bad credit” is caused by simply lacking a credit history, you can still get a VA loan. The interest rates on VA loans also tend to be low. Furthermore, VA loans make it possible for many people to borrow more money than they would be able to otherwise.

What Types Of Loans Should You Avoid?

Some loans that are offered to people with bad credit have an adjustable rate. This means that a low interest rate is offered at first. However, the interest rate doesn’t remain low. Instead, the interest rate begins to rise during the time that you have the loan. This means that the monthly payments continue to go up. In some cases, the monthly payments can rise to the point that the payments become unaffordable. This can result in foreclosure. Therefore, it is essential to read the fine print of any loan that you apply for.

Tips That Can Increase Your Chances Of Getting A Loan If You Have Bad Credit:

  1. Always Pay Your Rent On Time:
    If all of your rent payments were on time during the past year, your chances of getting a mortgage will be higher. It’s also quite easy to show lenders that this was the case.
  2. Some Factors Can Help To Mitigate The Effects Of A Bad Credit Score:
    If you lost a job in the past and ended up in debt, this scenario is often looked upon differently than the mismanagement of your money. If your financial problems are caused by past job loss, show proof of this to potential lenders. This may make them more likely to consider you.
  3. Online Research Can Be Effective But Be Cautious:
    There are plenty of places where you can search for lenders online. This can help you to find a loan that offers low interest rate and is available to people with bad credit. However, it’s always important to read reviews when doing online research. This can ensure that the lender you choose is legitimate.
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It’s a question almost as famous as the one about the chicken crossing the road. Should you rent or buy a house? The unequivocal answer is, yes, you should rent or buy a house because otherwise you’ll be living in your parents’ basement or homeless, and no one wants that for you. The truth is that’s not a question so easily answered, not that it requires complex math and reading of tea leaves but rather that it depends so much on your personal situation and state of mind. In some locations renting might make more sense. Elsewhere, buying might be preferable. Here are some considerations.

But First Let’s Talk About the American Dream

In the mid-19th century, the American Dream was to own 40 acres and a mule. One hundred years later it was a house with a white picket fence and two car garage. Today’s reality, according to Bloomberg, is that homeownership in America, either by choice or limited finances, is at its lowest rate in half a century. The percentage of the population that owns a home has historically run between 62 and 70 percent. In mid-2016 that number stood at 62.9 percent. Starting with the Great Recession in 2008, the winds of change have, indeed, been blowing.

Good Reasons to Rent

Fewer Upfront Costs

If you have limited funds, buying a house might be out of the question because it’s much more expensive to get started. In a rental situation, you can often acquire an apartment lease for nothing more than one month’s rent up front and maybe a security deposit or application fee. While there are a few upside down areas around the country where monthly rent exceeds what you’d pay for a mortgage, that doesn’t change the fact that you’d still need about 20 percent of the purchase price for a downpayment. On a $100,000 house, that’s twenty grand just to get the process started.

Job Concerns

The reality in today’s economy is that there are lots of people unsure if they’ll have a job tomorrow. For them, it’s probably better to save money where possible, including on housing, and concentrate on building up an emergency cash reserve to guard against personal financial disasters like medical bills or broken cars.

Short-Term Resident

If, for any reason, you suspect that you’ll be moving again within a few years, buying a home, even if you have the money, might be more trouble than it’s worth. The reality is that it’s a hassle to buy and sell a house. If you plan to start a family, are going through a divorce, or have moved for a temporary job assignment, you’re probably better off to rent until you’re more settled.

Good Reasons to Buy

You Have the Moolah

We mentioned earlier that you would need to put down about 20 percent of a new home’s purchase price in cash. What we didn’t go into detail about is that’s just the start of the upfront costs associated with buying a house. You can also expect to lay out money for property taxes, mortgage insurance, home inspection, appraisal, closing costs, realtor fees, title expenses, and a variety of fees as a long as your arm.

You’re Committed for at Least 5 Years

For buying a house to make financial sense, you need to plan to stay in it at least five years. That’s how long most experts say it takes to recover the initial money dump and for natural appreciation to allow you to sell at a profit. This doesn’t mean you’re guaranteed a profit, but real estate has shown to be a fairly stable appreciating asset over time.

You Like the Numbers

There are plenty of great financial reasons to own a home if you’re in the position to do so. For one, mortgage rates since the Great Recession have remained low. VERY low. The average rate on a 30-year-fixed loan is still under 4 percent. That’s cheap money. Don’t forget you can deduct the mortgage interest and property taxes you pay from what you owe Uncle Sam at tax time. Last, but certainly not least, buying a home is an investment because you build equity in it with every mortgage payment you make. For some, that’s worth the price of admission alone.

The Bottom Line

Regardless of whether you decide to rent or buy, keep in mind that housing expenses should not exceed 25 percent of your take home pay. Go higher than that and you might find yourself financially strapped in other areas. A final thought. If you can afford it and owning a home has always been your dream, don’t be afraid to pull the trigger just because only 63 percent of your fellow Americans are doing the same thing. That’s still a solid majority. But if you’re not ready to put down roots, there should be no pressure to do so. Do what’s best for you.

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