How to buy a house in Texas with bad credit

7-Step Guide To Buy A House In Texas With Bad Credit!

Homeownership is a fantastic feeling but buying a home is a complex process, well, a series of processes actually.

To begin with, securing a loan depends on your credit score. Your credit score determines your eligibility for the housing loan. Now, if your credit score isn’t looking good, you might be searching for an answer to this question, “how to buy a house in Texas with bad credit?” Fortunately, you can buy a house in Texas, even with bad credit. However, you’ll have to understand a few things in detail and then follow our enumerated steps carefully.

What Is A Bad Credit Score?

So what does a bad credit score mean? And what is it that you can do to improve it?

The Federal Housing Association and mortgage lenders rank credit scores in the light of score ranges. Take a look at the list below to see where you stand.

Exceptional credit      800 – 850

Very good credit         740 – 799

Good credit     670 – 739

Fair credit       580 – 669

Poor credit      300 – 579

To understand this list better, let us tell you that any FICO score beyond 670 is more towards the lower end. However, this doesn’t mean that there aren’t any mortgage options available for such a low credit score. But the options might be limited.

On the other hand, a score above 740 means you’re in the “green zone”. You can get any mortgage your desire with the best interest rates available.

The 7-Step Guide To Buying A House With Bad Credit

How to buy a house in Texas with bad credit?

Well, your homebuying journey with bad credit may seem difficult but there are ways to navigate through. Below are the 7 steps that will eventually help you become a homeowner in Texas.

Step. 1 Know Your Credit Score

The best place to start assessing your financial situation for a mortgage loan is knowing your credit score. Getting a clear picture of your credit score will tell you if you need to improve it and you’d know what to expect from lenders.

Furthermore, if you know what your credit score is, you can check whether you qualify for a loan or not. Most Texans use Credit Score and My FICO for checking their credit scores. You can also check your credit score on these websites, it’s free.

Step 2 Buckle Up And Save More

Even if your credit score is not what the lenders consider ideal, you should start saving more. Borrowers have a better chance of getting a mortgage from lenders if they can make a huge down payment.

Traditionally, mortgage loans can be acquired with at least a 3% down payment but with bad credit, the higher you are willing to pay upfront, the more your chances of getting the loan.

Apart from that, more money in your bank account is an assurance for your lender. While looking at your bank statements, they’ll have to ensure that you are not spending all your money on the house.

Bottomline: start saving!

Some easy ways to meet your target.

Start a side hustle

Use money from an inheritance

Add your tax returns

Use your stimulus check

Consult a tax expert and see if you can use your retirement savings

Step 3 Arrange For Higher Interest Rates

With a low credit score, you should be prepared to pay a higher interest rate on the mortgage. It’s because lenders see you as a bigger risk than people with good credit scores. So, instead of a 3 percent annual rate, you’d be asked to pay 5.

Throughout your loan, you’d have to pay more money because of your higher interest rate. Let’s say you get a loan of $120,000 for 30 years with an interest rate of 6%, you’ll have to pay $139,005 in interest. However, with an interest rate of 4.5%, you’d have had to pay $98,888 in interest. So, now, you’ll need to pay $40,000 more.

The good thing is, you can change that. Once your credit score improves, you can look into refinancing options and get a better mortgage.

Step 4 Research Suitable Loans For Low Credit Scores

If your credit score lies below that “Good” line, here are some good loan options to consider:

Conventional Loans: Conventional Loans has a special loan program for applicants with low income, a 3% down payment option. However, you’ll have to pay private mortgage insurance if you pay less than 20%.

The required credit score is 620 in most cases. But if you have a higher income or you can make a higher down payment, you’ll get the loan even if your credit score is below 620.

FHA Loans: The Federal Housing Association Loans are best for homebuyers with a score of 500-579. They can qualify for the loan by paying a 10% down payment. If the score is higher than 580, the applicant can qualify for the loan by paying a 3.5% down payment. However, applicants must pay private mortgage insurance for FHA loans.

VA Loans: If you are a veteran, a service member, an active military member, or are married to one, you’d be eligible for VA loans.

When you purchase a home with a VA loan, you don’t have to make a down payment. However, you’ll have to pay a VA funding fee and meet the criteria for a minimum credit score, established by the VA.

Step 5 Choose Your Lender Wisely

It’s always best to find a loan offer that is tailored to your situation. If you can’t get answers to your questions from your lender, you shouldn’t go ahead with them.

You should always contact different lenders and inquire about loan programs, your options, and how well they work for you. Once you have gathered all the information, terms, and conditions, you can compare the data and choose the best after careful evaluation.

There are plenty of qualified lenders in Texas that can help you with their expertise. Contact them before making your decision.

Step 6 Find A Credible Realtor

Working with a low credit score means you have to make sure your realtor understands your situation. Local realtors with experience in the field are your best shot. Not only will they listen to your requirements, budget, preferences, and ideas, they’ll help you in finding the best neighborhoods where you can get great houses at unbeatable prices. Most importantly, your realtor will take you to the houses, show you around, and help you make an attractive yet reasonable offer to the seller.

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Step 7 Get Ready For Rejections

Well, that’s the thing with bad credit. Not every lender is thrilled to take you in. So, you should make up your mind about some rejections.

Lenders mainly go through your borrowing and debt-returning history and if you have failed to return your loans in time, your loan request will be denied.

In case your credit score is really low, you’ll have to improve it in one year and you can then come back and apply for a loan again. Moreover, under the Equal Credit Opportunity Act (ECOA), you can ask your lender why your loan was denied. You can do that within 60 days after your request is denied.

NXTSQFT Is Here To Help

So, now that you know how to buy a house in Texas with bad credit, we are sure you can make a wise decision. But if you still need help with loans, or looking for the best homes to buy in Texas, NXTSQFT is here for you. To learn more, get in touch with us today!