Buying With Bad Credit

If one wants to get a mortgage loan in USA one has to have a good credit score. A credit score in USA is also referred to as a FICO score which ranges from 350 to 850 and three companies in USA maintain the credit scores. A credit score of 650+ rates as a good credit score and one can easily get a loan with a good credit score. But what if one has a credit score of less then 650 how one will manage to get a loan. There are several mortgage companies that advertise on the net and one can apply for a mortgage loan online. This is the worst possible thing that one who does not have a good credit score can do. As the more places one tries to secure a loan from the lower will the credit rating drop. If one gives vital information which is required to pull a person’s credit score on the Internet the companies to which one has applied to get a loan will pull the person’s credit score and for each time a credit score is pulled 10% points are deducted. So one who has a credit score of 580 applies for a loan may see their credit score drop to 500 as they have given out information that has allowed loan officers and mortgage companies to access their credit score. So one is advised not to give out vital information through which the credit score can be pulled.

Now the options for anyone who has a bad credit score to get a mortgage is either to pay off all outstanding debts and wait for a year for the credit score to improve or be prepared to pay more and get a less amount of loan. That is if one had a good credit score one may be offered 90% or even 100% as a loan. That is if the loan required is for $100,000 the mortgage company may be ready to give 90% of this as a loan which means one would pay $10,000 and the mortgage company will give $90,000. But if one has a low credit score what does one do? The loan officer will examine the person’s credit and employment history and tax records and then offer to arrange the loan but for a lesser amount and higher interest rate. Let’s assume that the person has a credit rating of 540 the mortgage company may offer to give a loan for 65% of what the person wants that means instead of getting $90,000 one will get a loan of $65,000 plus the processing charges will be higher and so will be the interest rate.

In USA one has to pay more in one is buying with bad credit but the question is how much more. Having a bad credit score is a clear indicator to the mortgage company that they can put additional charges for giving a loan. So the decision is either to clear bad debts and wait till the credit score goes up or to be ready to pay more in charges and in interest rates. So one should never be taken in by advertisements that say that ‘we handle bad credit’ or ‘get a loan with a bad credit’ as in most cases one will end up paying a lot to get the loan. So if one buys a house with bad credit one can get into serious financial problems. There are ways to buy a house with bad credit and that is to look at mortgages that are offered by the government like the Federal Housing Authority, etc. if you buy a house with bad credit you can definitely expect to pay much more then what you expected to pay. The additional interest that the mortgage company may charge over the current interest rate may vary from 1.625% to 6.25% depending on the persons credit score. So if the current interest rate for a 30 year loan of $100,000+ is 7% a person may pay as high as 13.25% interest with a low credit score. Plus the additional charges that the loan officer may charge can be anything.

Whereas some people will advise ‘don’t keep paying rent get the house of your dreams’ it is advisable to wait. Have a steady income for two years, pay all debts on time let your credit score go up and then go for a mortgage.