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Many people have been through terrible financial times and may have a rocky credit history. However, there are still options out there for those who want to buy a home. You may need to change up how you handle your money, or you may need to buy a smaller home and make it work.
Sign the Contract
When you find a house that you like, sign an offering agreement. Getting the documentation started puts a few more people on your money-finding team. For example, your realtor now has a great reason to help you find financing. They may have information about banks and other bad credit mortgage lenders who can help you to get qualified.
Once you sign that offering agreement and the seller has accepted, your offer has to financially fall through before the seller can accept another offer. Expect things to speed up at that point and be ready to submit multiple applications for funding to get the approval you need to buy your home. You can also get in front of this rush and apply to bad credit lenders to get pre-qualified.
Under-Buy and Over-Pay
When you find a neighborhood that you like, seek out less house than you’re pre-qualified for. Buy smaller than your lender thinks that you can afford so you can keep saving, have some money in reserve, and easily make all your bills.
Coming through a bad financial situation will be made worse by getting buried again. What a lender qualifies you for may be far more than you’re currently paying to rent your present home. If you’re managing rent but not much else, don’t take on additional monthly debt. Should you get to a point where you have some money at the end of the month, you can put it against high-interest debt. When the high-interest debt is gone, put it against the principal on your mortgage.
Be Ready to Be a Radical Saver
Instead of worrying about how much you owe, take a look at how much you’re saving from each paycheck. Set up an online bank account with an automatic deduction that comes out of your regular checking account like a monthly bill, then lose the password so you can’t check the balance. Ignore this money for a time until you know the neighborhood you want to buy in. Get honest about your money-handling skills. If you have a spouse or a partner who will be buying with you, have a serious conversation about your spending habits. Is one of you better with money than the other? Put that person in charge of the budget and put the other person on an allowance.
In addition to being a radical saver, consider becoming a radical earner. Instead of planning to work 8 hours a day, set your starting time and your quitting time. Do what you can to earn in those working hours. Can you start a side hustle writing, delivering groceries, or mowing lawns? One of the big benefits of working more hours than most folks is that your entertainment budget will go way down; when other folks are out spending money, you’ll either be working or sleeping.
Seek Out Landlords
If your credit is rough enough that banks just won’t talk to you, seek out landlords looking to get rid of properties. The eviction ban of 2020 put many landlords in a very rough patch; while tenants couldn’t be evicted, banks still needed their money. Look for properties that have been on the rental market for a while. These houses may not be in great shape or in the best of neighborhoods. Sign a 6 month lease if possible and let your landlord know that you’re interested in buying if things work out.
Once you’re in the property;
- clean things up
- cut the grass and trim the shrubs
- put flowers in pots on the front porch
- hang curtains, not blankets, on the windows
- pay your rent 5 days before the due date
Let your landlord know that you’re serious about being a good renter and a good buyer. In six months, if you still want to buy, they may be happy to talk.
Conclusion
It is possible to buy a house with some rough spots in your credit history, but over-buying or getting buried in repair debt is not financially smart. Buy small and live in the space for 6 months to a year before making big changes in your new home.
