One of my goals, before I’m 30, is to be a homeowner. However, in my mind to purchase a home I need to have at least an 800 or better credit score to get the best deal. And even though my credit score isn’t bad I’m not in the 800 so to get in the process to be able to purchase my first home this year I had to get a little creative, therefore, I wanted to share with you some options that I explored and the option I decided to take to become a homeowner before I hit my 30s.
Look for Ways to Improve Your Credit Score
Always search for ways to improve your credit score. There’s no doubt that a better credit score will always make life easier for you.
But first of all, you need to know your credit score. Services like Credit Karma can help you get your credit report for free. Make sure you look at your report to make sure there are no mistakes.
Once you know your credit score it’s time to start building it. A company like Self Lender or Rental Kharma can help you boost your credit score. While I haven’t gotten started with Self Lender yet in the Facebook groups that I’m in they highly recommend both services. Rental Kharma helps you document your rent payments on your credit report and I started with them a week ago and I’m waiting to see if their services can get me into the 800 range that I’m aiming for.
You should also look to borrow small amounts from any credit cards you’re eligible for and then pay them back as soon as you can.
Finally, make sure you pay off any outstanding debts you already have. Make sure you pay the ones with the largest interest rates to start with.
Consider Renting to Own
You don’t have to let your credit score negatively affect your housing search when trying to purchase your first home.
Another option is to rent to own. These homes allow you to rent the home while your payments are going towards owning it. It’s the best of both worlds and they’re available even with a subpar credit score.
These are not in abundance, so the area where you want to rent to own will be a factor, but it’s worth looking into.
I’ve considered this option since I’ve always rented from landlords, so it is something that I stand behind if it’s the option that works best for you and your financial situation.
Consider Owner Financing or Taking Over Someone’s Mortgage
Lenders don’t want to lose money because someone is going to default on a mortgage. You can take over that mortgage legally and assume the rest of the cost.
All you have to do is pay out the mortgage buyout costs and any other associated fees. Just contact the lender and make your intentions clear.
Make sure you look at the terms and conditions, though. You will have to accept the lender’s terms and there’s much less room to negotiate. For example, in many cases, you will have to accept the house as is and won’t have the option to get it inspected or appraised. Lenders like United Funding Corp are popular options for this type of agreement.
Therefore, it’s a viable option for getting your first home if you don’t have a good credit score.
In fact, this is the route I decided to take since credit doesn’t play a factor. Instead, I just pay a down payment of up to $10,000 and make regular rent payments and once it’s paid off it’s done and over with. Plus, in the meantime, I can make any adjustments to the house as I see fit without having to get a landlord’s approval.
Downgrade Your Current Place to Save More Money in Your Housing Fund
The other alternative to buying your first home with a less than stellar credit score is to offer a bigger deposit. Hard saving can get you on the housing ladder.
Try downgrading your current place by looking at cheaper rental options and then you can put more money into your housing fund.
The bigger your deposit the lower the credit score requirements.
However, keep in mind that if you have an awful credit score even a bigger deposit won’t help. That’s why I always recommend trying to improve your credit score as much as you can.
Even downgrading could free up more money to pay off your debts and thus improve your credit score.
I took this route a few years ago myself because I was sick of spending so much money paying for a place to stay that was never going to be my own. Now I’ve been able to save a lot more for my down payment to increase my odds of getting into a home if I do decide to go back to the more traditional route of a bank loan.
Final Thoughts on Purchasing Your First Home Without Having the Perfect Credit Score
Credit scores are everything during this age in time especially when it comes to purchasing a home. However, with a little creativity even if your credit score is in the high 600s to low 700s you can still be a homeowner without the high-interest rates.
Have you purchased a home without a perfect credit score? Share your tips in the comments section below.