Getting a Mortgage With Bad Credit

Mortgage with Bad Credit

Is it possible to get a mortgage with bad credit? The answer is yes, but attempting to do so can pose unnecessary financial hazards. A far more effective plan would be to improve your credit score first and then seek real estate.

Get an FHA Loan

When your credit report is less than stellar, you could try taking out a Federal Housing Administration (FHA) loan, which the government insures. The FHA, by the way, is a division of the U.S. Department of Housing and Urban Development. The requirements for such a loan are relatively lenient. If you’ve experienced a foreclosure or if you’ve filed for bankruptcy, you still might be eligible.

The down payment of an FHA loan amounts to just 3.5 percent of a new home’s total cost. Private lenders often ask for larger down payments, sometimes at rates of 20 percent or more.

FHA loans do have drawbacks, though. To secure one, you’ll need to take out an insurance policy, and its premiums can be more expensive than conventional loan insurance premiums. For an FHA loan, you’ll have to pay an upfront premium as well. A private lender probably wouldn’t require you to make such a payment.

Also, it’s possible that you could obtain an FHA loan only to realize later that you’re unable to make your payments. In the end, it’s better to get rejected for a loan than to get a loan you can’t repay.

Find a Cosigner

Another option is to locate someone who’d be willing to cosign your mortgage. If this person’s finances are sound, he or she should be able to help you procure a lower rate of interest and other favorable terms.

However, this course of action ought to be your last resort. If someone were to cosign your loan, that person would be assuming a major risk. If you failed to make a payment on time or if you were to default, your cosigner’s credit score would be damaged severely.

For that reason, don’t be surprised or offended if those who are close to you decline to cosign. Likewise, if people ever ask you to cosign for them, you should turn them down no matter how much you’d like to be of assistance.

Use Your Negotiating Skills

If you have bad credit, you might still be capable of persuading a lender to grant you a mortgage. Most likely, you’d have to demonstrate that you currently make a lot of money, have substantial savings and aren’t in debt. Furthermore, it may help if you can prove that you’ve paid your rent punctually for the past 12 months or longer.

All of these factors would indicate that you’re financially responsible, and they might convince lenders to overlook your credit score, especially if it dropped due to circumstances beyond your control or because of a one-time mistake that you vow never to repeat.

On the other hand, you might create a financing plan with the person who’s selling the house. That is, you could make a significant down payment and agree in writing to give him or her a certain amount each month. However, many sellers simply have no interest in such deals.


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Whipping That Credit Score Into Shape

Given the serious drawbacks to all of the home financing methods mentioned above, there is only one conclusion to draw here. Before you even start looking for a home to buy, you really should make sure that your credit report is impressive enough.

Different credit reporting agencies have somewhat different credit score ranges. But, roughly speaking, those scores extend from 300 to 850. If you want to take out a conventional home loan, you should have a score of at least 650, and 700 or higher is preferable. Don’t panic if yours is less than 650, however.

Rather, there are a variety of ways in which you could raise that number fairly quickly. For one, you could obtain copies of your credit reports, look for errors that aren’t in your favor and tell the agencies about them. In addition, pay off all of your credit card balances. Likewise, if you haven’t always been doing so, start consistently paying your credit card bills on time and in full.

Moreover, with each of your credit cards, don’t utilize more than 30 percent of your credit line during any given month. In fact, to keep your utilization rate down, you might request higher credit lines if you’re eligible for them.

Finally, an outstanding credit repair service can review your specific financial circumstances and find ingenious and highly efficient techniques for boosting your score.

In the end, the strongest reason to avoid taking out a mortgage with bad credit is that you’d most likely get stuck with an extremely high interest rate. Because of that rate, you’d spend thousands of dollars more over the life of your loan. By contrast, you could invest perhaps a couple hundred dollars in improving your credit score. Consequently, you’ll not only obtain a much more affordable mortgage, but you’ll have the ability to work out many other advantageous financial contracts in the future.


5 Biggest Credit Score Myths Debunked

Credit Score Myth

Your credit score plays an important part in your life. Whether you realize it or not, that three-digit number can impact whether you are hired for a job, the interest rate on your credit card, and even your mortgage payment. Yet, around 40 percent of Americans never bother to check their credit ratings, and many people simply don’t understand how credit scores work.

Let’s put a stop to that. Here are five of the biggest credit score myths, and the truth behind the lies.

Credit Score Myth 1 -You Only Have One Credit Score

One of the biggest credit score myths is that each person only has one credit score. The reality could not be further from that misconception. The truth is that each credit reporting agency has its own method for calculating your credit rating, and many lenders have their own system, too.

There are three main credit reporting agencies — Equifax, Experian and TransUnion – but they aren’t the only ones in the game. There are lots of credit reporting agencies in the United States. Then, there are the companies like FICO and Beacon that have their own systems for figuring your credit score. The worst part is that, depending on the algorithm each one uses, your credit score could vary significantly.

Credit Score Myth 2 – The Fewer Credit Cards You Have the Better

Another popular credit score myth is that the fewer credit cards and loans you have, the higher your credit score will be. People, believing the lie, close their accounts and pay off loans early in an effort to boost their credit scores, but when the dust settles, their credit scores are often lower than they were before they closed those accounts.

The reason comes down to the amount you owe relative to the available credit you have. It is called credit utilization, and it has a major impact on your credit score. If you close your accounts, the amount of available credit you have also goes down and your credit utilization rate increases in response. In turn, your credit score takes an unnecessary hit. Ideally, you want to have a large amount of credit available and be using a small percentage of it.

Credit Score Myth 3 – Your Credit Score Is Affected by Your Income

The idea that your credit score is impacted by your income is a common myth, and it couldn’t be more false. Your credit score is calculated using many different factors. Whether you have paid late or missed a payment, how much you owe, your credit history, the number of new accounts you’ve opened, and the types of credit you carry all figure into your credit score to varying degrees. Income is not part of that picture.

While a creditor or lender may use your income in tandem with your credit score to make a decision about whether to grant your loan or allow you to open a credit card, if someone such as your insurance company or a potential employer runs your credit score, your income does not come into it. In fact, credit reporting agencies do not even have access to that information.

Credit Score Myth 4 – One Late Payment Isn’t a Big Deal

The mail gets lost. You misplace your statement. The dog eats your bill. Late payments happen. However, they have a bigger impact than you might expect. “Payment history is typically the single largest factor in a credit score,” explains Discover. Your payment history makes up about 35 percent of your credit score, and some places may weight it even higher – the penalty can be severe. According to Discover, “Missing one payment could wind up on your credit report for up to seven years. What’s more, in the short term, it can drop your score by more than 100 points.” That’s enough of a drop to cost you an opportunity or at least qualify you for a far less advantageous interest rate.

Credit Score Myth 5 – Your Credit Score Is Accurate

One of the most dangerous myths about your credit score is that it will always be accurate. After all, why check your credit score if you can’t change it? As it turns out, there are some pretty big reasons to keep an eye on your credit score.

According to a 2013 study by the Federal Trade Commission, “one in four consumers identified errors on their credit reports that might affect their credit scores,” and for around 5 percent of people, those errors were significant enough to result in paying higher interest rates. The FTC also found “slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report.”

Moreover, the study found that one out of 250 people had an error on their credit report that resulted in a change of over 100 points after the inaccuracy was corrected. It is for this reason that the government allows you to check your credit report from each major credit reporting agency once a year. It is also the reason that so many companies provide assistance in correcting credit report errors.

With this much misinformation out there, it can be hard to know what to do about your credit score. You need a trusted adviser who knows what goes into a credit score, as well as how to correct errors in your credit report. Ovation Credit Services can help you make sure your credit report is accurate and provide you with the guidance you need to improve your score and reach your financial goals. Contact us today for a free consultation.

6 Signs Your Budget Needs a Restart

Budget Restart

Your personal budget is like a relationship. It should be a source of comfort and strength. Like a significant other, it should grow with you and help you realize your goals.

Of course, like many relationships, some budgets just don’t work out. They become unreliable, and they lead to stress and heartache.

Here are some signals that it’s time to break up with your budget and start going with a new one.

1. Your Budget is Unorganized

To some people, a “budget” is simply a quick, jotted-down list of how they think they’ll be spending their money during the following week or month. Unfortunately, such lists can be hard to follow; they’re often incomplete and soon abandoned.

Instead, along with each member of your household, spend plenty of time thinking of and writing down ― or typing ― every single item that you regularly pay for. You could use old receipts, credit card bills and bank statements to refine your dollar amount estimates.

Next, divide those entries into broader categories like groceries, rent or mortgage, clothes and shoes, savings, automobile costs and social activities. Finally, organize those groupings from the most important to the least important.

That way, you’ll have a handy tool that you can easily read from top to bottom every week or month. You can also check off all of your expenses as you pay them, and you can make revisions as necessary.

2. It Only Deals with the Short Term

It’s great to have a weekly or a monthly budget. However, many people neglect to create an annual budget and a longer-term financial plan as well.

With a long-term budget in place, you might save more money to fund your major goals. Those objectives could include your children’s college educations or your living expenses when you’re retired.

Plus, a big-picture budget will give you a sense of your overall financial health. If you’re falling short of your goals, you could take action right away. Maybe you’d request a raise, find ways of reducing your spending or rearrange your investment portfolio.

3. You’re Unprepared for Emergencies

Sure, you might have enough cash to pay your expenses every month. But do you still get a sinking feeling when you think about money? It might be because you’re not quite saving enough.

You should save at least a fifth of your income each year. Moreover, at any given time, you should have several thousand dollars or more that you could access right away if you needed to.

It’s unpleasant to contemplate, but you ought to ask yourself: What if you suddenly had to pay a large medical bill? What if you totaled your car? In this situation, would you have to make some hard choices, such as not paying your utilities bills to avoid eviction or foreclosure?

4. You’re Overusing Your Credit Cards

Do you frequently rely on your credit cards to pay your bills because you don’t have enough cash on hand? If so, your budget is insufficient. Your expenses exceed your income.

This habit makes it surprisingly easy to build up massive credit card debts, which could put you in serious financial jeopardy in short order.

Remember that you shouldn’t use more than 30 percent of your credit card limit at any time. Otherwise, you could hurt your credit score. Fortunately, if you’ve had credit card problems in the past ― including a history of late payments ― you can improve your score by being diligent from now on. Further, obtaining the services of a dependable credit repair company can help a great deal.

5. You Keep Dipping into Your Savings

This problem is very similar to the credit card scenario above. Since you don’t have as much money at your disposal as your budget requires, you repeatedly make unplanned withdrawals from your savings accounts. You tell yourself that you’ll make up the difference sometime soon. As time passes, though, you find that you’ve significantly depleted your nest egg, making your financial dreams harder to reach.

6. You Haven’t Taken New Circumstances into Consideration

If someone in your home is laid off or you’ve recently lost a lot of money, it’s vital to rework your budget right away. Maybe you can move in with relatives or start sharing a car with your spouse for a while to bring your cost of living down. If you stick to the budget you had before, you may soon find yourself in a deep monetary hole.

On the other hand, maybe you’ve acquired a big sum of money, such as an inheritance or a prize. Without careful planning, it’s easy to overspend and lose it all. Thus, in consultation with an accountant, tax attorney or other expert, craft a new budget that raises your spending rate a little while still protecting your economic future.

Indeed, no matter what’s going on in your life, review and amend your budget every now and then, not just when your finances change. Remember to factor in new expenses, look for places where you could save money and adjust for rising or falling prices. A dependable budget is one that’s ever evolving.