If you apply for a mortgage, lenders are going to look at your credit score. If you have bad credit, they may deny you a loan entirely. Or they may charge you a higher interest rate if they are willing to allow you to borrow at all. This can make becoming a homeowner more expensive.
Since bad credit adversely affects your ability to get an affordable home loan, you may be wondering whether it ever makes sense to move forward with becoming a property owner if your credit score is imperfect.
The answer is, it depends – but there are situations where you may opt to bite the bullet and buy a home even if your credit isn’t great. Here’s how you can decide.
Are you financially ready to buy a home?
The very first thing to consider when deciding whether to buy a home with bad credit is whether you are in good financial shape generally.
See, sometimes people have low credit scores because they don’t borrow money and therefore don’t have much of a credit history. Or in other cases, disasters in the past hurt their credit but they’re now in a good place financially. If that’s the case, then moving forward with buying a home may not be the worst choice even if you have to get a mortgage at a slightly higher rate than someone with a better credit score. You can start benefiting from property appreciation, work on improving your credit, and hopefully refinance after a short period of time once you show you are a responsible borrower.
But if your credit score is low because you are…
