in fact, the average American family owes $15, in credit card debt. Under such a premise, many people will be puzzled: can you borrow money to buy a house in the United States when your credit record is bad?
yes, but if you want everything to go smoothly in the process of buying a house, you need to solve the economic problems in your credit report from now on. Here, Xiaole will share with you what a credit score is and how to buy a house in the United States if the credit is bad, in view of the concerns of many lenders.
what is a credit score?
Credit score, also known as FICO, is an indicator of a borrower. The credit score ranges from 3 to 85, and the higher the score, the better. The lender will decide the loan amount and interest rate according to the personal credit score. The lower the credit score, the smaller the loan amount and even higher the interest rate.
according to the usual practice, the mortgage institution will check your credit score, and the score will be calculated according to the information on your credit report. There are five factors that affect the score, and their respective proportions are different:
repayment record accounts for 35%,
debt amount record accounts for 3%,
credit record duration accounts for 15%,
new credit accounts for 1%, and
credit structure accounts for 1%.
let's understand these factors one by one.
1. repayment record
you should repay the loan on time, because one overdue payment will greatly affect your credit score. For example, according to Equifax, an American credit agency, a consumer has never missed the payment before and holds a credit score of 78 points (out of 85), but only one overdue payment of 3 days will reduce his credit score by 9 to 11 points.
2. Debt amount record
That is, the accumulated debt amount on your credit card is divided by the credit amount in the total account. Credit experts suggest keeping this ratio at around 3%. If you overdraw your credit card every month, it will damage your credit score.
3. credit record duration
the longer the credit record duration, the higher the credit score. Bill Hardekopf, a credit expert, said that credit institutions will examine the opening time of your earliest and latest accounts (for example, 2 years and 3 months) and the average opening time of all accounts. The sooner you start to build personal credit, the more essential it is. Financial experts usually advise parents to open a credit card for high school children and help them understand the importance of establishing personal credit, and of course, they should be responsible for personal credit.
4. Add new credit
Every time you apply for a new credit account, your credit will receive a "hard inquiry", which will reduce your credit score (usually by 5 points). Therefore, Hardekopf suggested not to open multiple credit accounts at the same time. Doing so will shorten the average opening time of your credit account and damage your credit history.
5. Credit structure
Holding different types of credit accounts, such as credit cards, retail accounts, installment loans, car loans and mortgage loans, will help to improve the credit score (the last item is what you are about to apply for).
Bad payment records, such as overdue payment, judgment, tax lien, collection account, write-off, asset recovery, settlement, loss-making sale, foreclosure, child support, debt consolidation and some loan modification, will be retained for 7 years, or even longer under some special circumstances (including bankruptcy). Although these bad information can be kept for seven years from the date of its generation, the bad information in the last two to four years has the greatest impact on the credit score.
what is the ideal credit score?
according to Fair Isaac Corporation, the widely used founder of FICO credit score, the perfect credit score is 85, but only .5% of consumers can reach this score. Chris Hauber, the mortgage promoter from Hallmark Home Mortgage, a mortgage company in Denver, Colorado, said that as long as the credit score exceeds 74, you can meet the standard of an ideal mortgage lender and enjoy the best interest rate. It is best to have a good credit score of more than 74 points if you intend to apply for a loan.
if your credit score is only over 7, you can still enjoy a more favorable interest rate. You can enjoy a relatively favorable interest rate when you reach 66 points, and you can apply for a loan without meeting additional requirements.
for regular loans, most lenders will require your credit score to be at least 62. If the score is lower than 62, it is difficult to get a loan, or you must pay a fairly high down payment and interest expenses. For example, the credit score is 6.6 million, the interest on a loan of 5, yuan is 5%, and the total amount in 3 years is more than 966, dollars. If you have a credit score of 74, you may only need to pay 4% interest. The total amount in 3 years is $859,, saving $1,!
how to buy a house with bad credit?
Of course, you can buy a house with a bad reputation. You just need a little patience and more money. In addition, you can also choose to find another loan method or pay a high subprime loan.
method 1: make full use of government agencies
1. institutions eligible for federal mortgage loans, such as the Federal Housing Administration (FHA). This loan scheme is managed by the Housing Department and Urban Development (HUD), and the credit standard will not be too strict. The minimum credit score is 58, and the down payment is 3.5%.
talk to FHA lenders about whether your bad credit will affect your loan from the Federal Housing Administration. As long as your income meets its requirements, you may be qualified.
work with the housing consultant of the Ministry of Housing and Urban Development to find a willing lender. Call 8-569-4287 or visit hud.gov for reference.
2. If you have a record of military service, apply for a Veterans Affairs (VA) loan.
talk to different lenders about options. Although VA does not have a minimum credit value to qualify for a loan, lenders applying for VA loans may need it.
3. Investigate the local house purchase plan in your existing community. If you are a civil servant (such as a teacher or police officer) or a first-time home buyer, you may not need credit to qualify for state and local home purchase plans.
Method 2: Buy a house without mortgage
1. Pay for your house in cash. This does not require loans, mortgage payments or credit standards.
retirement accounts such as liquidation, investments in mutual funds and other savings plans.
2. Borrow the 41K plan. Many employer-sponsored schemes allow you to borrow money to buy your own home. You will pay for yourself every month instead of paying the mortgage.
3. Look for houses with reasonable prices. When you have bad credit and are not ready for a loan, you need to buy an affordable house.
cut down on the decoration of your house, and choose a loan to modify your house after your credit line is strengthened.
4. Borrow money from friends and relatives. Those who know and trust you are more likely to extend an olive branch to you.
method 3: monthly payment
1. find the house you want to buy and ask the seller if he is interested in renting it.
2. Rent a house that is higher than the market value, and use down payment and installment payment. For example, if the monthly rent of a house is usually in 8 yuan, you pay 1,2 yuan, and the landlord will share 4 yuan in the future monthly rent.
3. negotiate the purchase price of the house with the seller and sign a monthly supply contract.
Let a lawyer review your contract to protect your interests, and the seller can't sell the house to anyone until you are able to buy it.
4. Rent a house for two or three years, during which you can redeem your credit and qualify for a loan.
once you can get the mortgage approval, agree to buy it.
Method 4: Subprime loan
1. Prepare to pay a higher interest rate. Since the financial collapse in 28 -21, subprime lenders have been more strict in management, but the interest rates and fees are still higher than traditional mortgage loans.
check your income and try your best to pay the down payment. The more down payment you make, the more reasonable the monthly mortgage loan will be.
2. Please make sure that you can make monthly mortgage payment. In addition to your family's loan, you also need to take tax and home insurance into account.
3. Look around for the best exchange rate. You can find subprime lenders online, or mortgage brokers who lend money to people with bad credit.
tips: consider waiting a few years before buying a house. If you have bad credit, you can consider renting a house for two or three years and re-establishing credit and saving for the down payment. During this period, you can sort out your assets and find the best loan scheme.
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