At the top of the list is making sure you have a good credit profile in order to qualify for a home loan.
You also need to understand the true cost of the home beyond the selling price.
This includes items like property taxes, insurance and maintenance.
Once you have that figured out, you have an idea if you’re ready to take the next step.
What happens if you still want to buy a house but bad credit stands in the way? We have some tips on how to buy a house with bad credit.
Understand your credit score
Each lender has its own requirements as to what range they’re looking for when it comes to a credit score.
Most look at your FICO score. FICO is short for Fair Isaac Corporation, which was the first company to offer a credit-risk score.
FICO uses a formula to measure and assign how worthy you are to receive credit.
It’s based on a variety of factors including payment history, outstanding balances, age of credit, new credit and mix credit.
If your FICO score is below 580, your credit score is considered “poor” or “bad.”
A FICO score between 580 and 669 is considered “fair,” meaning it’s below the average credit score of most U.S. consumers.
FICO scores ranging from 670 to 799 are considered “good” and “very good”.
FICO scores of 800 and above are considered “exceptional”.
The higher your FICO credit score, the better mortgage rate you can expect to receive.
Larger down payment
One option if you have a bad credit score is to save for a larger down payment.
The more money you put down, the less you’ll have to borrow.
This could help you get a lower interest rate and lower mortgage payments.
Since a larger down payment means you’re a less risky borrower, wait to apply for a mortgage until you’ve saved a substantial amount.
Ask your family for help
Let your family know that you’re in the market for a home and could use some financial assistance.
Your family may be able to help you with your down payment, closing costs or other related expenses.
If you have bad credit, you may need a co-signer to get approved for a loan.
You need to make sure you make your monthly payments because a co-signer will be responsible for paying your mortgage if you default.
Down payment assistance program
Many first-time homebuyer programs offer down payment assistance.
There are several types including mortgage down payment grants which is a one-time, lump sum payment assistance which does not have to be repaid.
Government loans offer low interest rates. Some allow home buyers to not put any money toward the down payment.
There are also low-interest loans and deferred-payment loans, both of which need to be repaid.
Rent to buy
TikTok and Instagram influencer Preston Seo, who teaches financial freedom, shared unique advice to his more than two million followers on TikTok.
Preston Seo with The Legacy Investing Show told The Sun: “It definitely is hard to get approved for a mortgage these days, however if you find a good lender, have a solid game plan, and execute you can definitely still get approved even in today’s financial climate.”
If you’re interested in buying a certain home or apartment, Seo suggests proposing to the landlord renting the property with the option to buy in three years.
The landlord can take a portion of the rent each month and have it credited toward a down payment.
Preston added: “Be patient. Repairing credit can take a while.
“Just consistently make your payments each month and you’ll see your credit score increase.”