People with bad credit have more ways to borrow money to buy a home today than they did in the past. There are a lot of lenders who focus on what is often called a "bad credit home purchase loan." But, as with many things in life, you shouldn't do something just because you can. In fact, the fact that you can get a loan could be seen as a small part of whether or not you should buy a home right now.
How You Can Help
To help you decide if you should buy a home or not, the first thing you should do is do the math to see what kind of mortgage rates you could get and how much it would cost you to buy now. Doing this is better than talking to a lender about bad credit purchase loans first.
Your credit rating is the first number you'll look at. You can get this number from one or more of the major credit reporting agencies. Trans Union, Equifax, and Experian are some of the most well-known. Then, you'll need to think about the loan-to-value ratio, or how much you want to borrow compared to how much the house is worth. Your debt-to-income ratio, which shows how much you owe compared to how much you make now, is another thing that will affect the type and rate of loan you can get.
What Should You Do?
You can use the numbers you collected above to figure out what terms and rates may be typical for your financial situation. You can also use a mortgage calculator to get an idea of how much a loan for a certain amount will cost you each month. There are a lot of other things, like points and closing costs, that will change that number, but it is a good starting point for deciding whether or not you should buy a home right now.
Even if your monthly mortgage payment is more than the recommended 30 percent of your income, there are many lenders who will give you a loan. Even so, it's still not a good idea. There are other costs that come with owning a home that you'll need to think about, like repairs and maintenance. If you buy too soon, it could cost you extra money that you don't need to spend.
Think about and compare the benefits of waiting. You'll have time to look around for the best loan to buy a home with bad credit. You can save up for a bigger down payment and keep improving your credit score. All of these things could lead to better rates and terms, which will save you money in the long run.
