No matter what, credit is important when buying a home. Having good credit greatly improves one’s chances of obtaining a loan, but home ownership with bad credit isn’t impossible. What does bad credit look like? Here’s a useful breakdown:
720+ Excellent Credit: Should easily qualify for a variety of mortgages, obtain good interest rates and low fees.
680 – 719 Good Credit: Most likely able to qualify, with a decent interest rate and standard fees.
620 – 679 Fair Credit: A chance to qualify, with fewer options, higher interest rates and fees.
580 – 619 Poor Credit: Difficult to qualify, with much fewer options, higher interest rates and fees.
350 – 579 Bad Credit: Unlikely to qualify for a mortgage, with some exceptions.
If your credit is below 680 or lower, don’t despair! There are still options out there for you to buy a home. Keep in mind however, the lower your credit, the higher your interest rates are likely to be. Here are a few options for those with bad credit.
- An FHA/USDA/VA loan: These are special program loans for those who qualify. The FHA loan comes with 3.5% down payment. The USDA loan offers financing for those in rural and low population areas, and the VA loan offers 100% financing for veterans.
- Private Mortgage Insurance (PMI): This is an additional fee the borrower pays the lender if they are deemed risky.
- A Larger Down Payment: For those who might be credit-poor but cash-rich, this is a good option. A larger down payment is good leverage when dealing with a lender, and if they are worried about you making your monthly payments, you can give them more up front.
- Co-signer: Someone with good credit who is willing to be responsible if the monthly payments are not made.
- Fix Your Credit: Bad credit is not permanent. There are many ways to fix your bad credit, and it may take less time than you think. There are a few Homes.com articles that explain just how to do it.
Back to: How to Prepare to Buy a Home
The Home Buying Process Demystified
The home buying process is wrought with potential pitfalls and challenges, but when done right can be relatively painless. As champions of homebuying, we’ve created this step-by-step guide to help you through the process.
Below you’ll find an overview of the home buying timeline as well as the major components of the home buying process with links to the various steps, tools, and information to educate and empower your home search, discovery and purchase.
How Long Does it Take to Buy a Home?
Your timeline may vary, but the following is a good guideline
- Preparing to Buy a Home: 3-4 weeks
- Initial Search for Ideas: 1-4 weeks
- Building a Team: 1 week (overlap initial search)
- Pre-Approval of Mortgage: 12-48 hours
- The Home Search: 4-8 weeks (depending on criteria)
- Contract-to-Close: 14-60 days
So, on average a homebuyer will spend 30-60 days shopping and 14-60 days from contract to close. For some folks, the process can be extremely quick taking as little as 30 days total, while for others, the shopping period alone can last several months.
How Much Home Can I Afford?
The first step in the home buying process is understanding if you have the resources to buy a home. This includes knowing how much home you can afford, what type of down payment and monthly mortgage payment to budget for, as well as what type of loan program you’ll use to finance your new property.
Buying a home is a complicated process that requires a good deal of research. In the course of it, there will be a number of professionals and specialists involved. Once you’ve done your homework and assessed your resources, you’ll need to assemble your team.
Assembling Your Team
After you have a good understanding of your own wants, needs, and goals, it’s time to assemble your team and begin the home search! Who should be on your team? Who you’ll need to find on your own may vary, but the key team members could be: Real estate agent (could be a RealtorTM but not all agents are), home appraiser, title company, home inspector, insurance agent and mortgage lender.
When selecting the members of this team, take the same amount of care you would in choosing a home, because these people will be working for you to help you do just that. Trust & communication are key considerations in working with your team.
Sorting Out Your Finances
With the selection of a mortgage lender comes the application for mortgage pre-approval, a task that requires collecting the necessary financial paperwork to help obtain the approval. Once obtained the clock begins ticking because many pre-approval offers have a limited life-span before they expire.
Your Home Search
While you juggle the paperwork and timelines implicit to the process, remember that your team works for you. Now your search for (and discovering) your new home begins. Research, save, view and repeat. Remember Homes.com has all the tools you need to find and keep track of your favorite properties and home shortlist.
You’ve got a mortgage pre-approval in hand and have found a property you can afford to purchase and see yourself living in. Time for a purchase offer to a listing agent or seller!
Once you receive an acceptance offer, the due-diligence period starts a timeline of checks and tasks for final mortgage approvals, appraisals, inspections, and other requirements that would be stated in the terms of the contract.
Assessment, Conditions & Negotiation
Many consider this to be the most difficult part of the home buying process as it includes, but isn’t limited to, inspection, obtaining the final loan, purchasing insurance, and the potentially arduous negotiation. In this part of the process, every member of your team will be utilized, and the more homework you have done in building your team, the smoother this part will go. Those who haven’t conducted their proper due diligence could potentially see the purchase fall apart at this point.
Closing the Deal!
A successful closing requires all of the team players to come together at the same time, with the same agenda, on the same date, with numbers and figures that match. From the start of the home search to the home inspection and closing the deal, the entire home buying process can take most homeowners about three months.