Tips for Buying a Home With Imperfect Credit
Southern California home prices are some of the highest in the nation, so it’s understandable that a majority of home buyers require some degree of financing for their home purchase. But how do you maximize your chances of getting your dream home if you have imperfect credit. That’s precisely what we’ll discuss in today’s article from Orange County Berkshire Hathaway Realtor Brittany Leighton.
Buy a Home With Imperfect Credit by Paying Down Your Balances
One of the first areas where you should focus is on your your credit line utilization. You should strive to minimize this as much as possible by paying down your balances, as this is a major point of consideration when seeking a home loan.
For instance, if you have a $10,000 limit on a credit card and you have a $8,000 balance on that card, then this credit line is 80 percent utilized. Ideally, you should aim to keep your credit line utilization at 30 percent or less.
So before seeking a mortgage, work to avoid incurring more debt as you pay down the balances, ideally to the 30 percent mark or less.
Buy a Home With Imperfect Credit by Checking Your Credit Score
Every time a potential lender pulls your credit report, this actually dings your credit score. But you are entitled to one credit report from each of the three U.S. credit reporting agencies on an annual basis.
So go to a website like FreeCreditReport.com and get a free copy of your credit score annually. Then, check over the credit report for any inaccuracies. Inaccuracies and mistakes are actually more common than many realize.
Referencing your credit report also allows you to see where you’re struggling. For instance, it’s easy to lose track of how many late payments you’ve made, but when you see your report, you’ll see them all collectively at once, giving you a better idea of whether this is an area where you need to work on improvement.
Remember, payment history accounts for 35 percent of your credit score and has the greatest impact if you’re seeking to improve your score. Notably, the past 12 months of your credit history are weighted most heavily.
If you’ve recently had a delinquency or late payment, it’s best to wait at least 14 months before applying for a home loan.
Establish Credit if You Don’t Have Much History
No credit history can be worse than a so-so credit history, so you may need to spend at least a year working to establish credit.
Consider applying for a small loan or credit card and make your payments on time to build up your credit. One strategy is to secure one or two credit cards, then charge your monthly purchases. Then, pay off the balance at the end of each month, but be cautious to avoid over-spending.
You may need to get a bit more creative in some cases. Financial experts recommend establishing a minimum of three credit lines with a payment history of 12 months. This can be done with credit cards and auto loans, for instance.
Otherwise, you’ll need to secure four non-traditional credit trade lines with a payment history of 12 months or longer. This can include your rent, your cell phone bill, utility payments and car insurance payments. But you must use a checking account to secure a tangible history. Paying cash won’t provide any benefit toward building your credit history.
Buy a Home With Imperfect Credit by Saving for a Sizable Down Payment
When all else fails, saving up so you can put down a sizable down payment can be an effective strategy for getting your dream home.
The more you spent on a down payment, the less you’ll need to borrow and the better you’ll look to potential lenders.
Remember that in addition to the down payment, you’ll need to leave sufficient funds to cover closing costs and moving expenses. So be sure that you don’t put yourself in a bad financial situation by putting every penny into your down payment.
Contact Realtor Brittany Leighton to Buy or Sell Real Estate In Southern California
Brittany Leighton, of Berkshire Hathaway and Brittany Leighton & Associates, Inc. specializes in luxury property sales in Southern California, including Orange County.
If you’re ready to sell your home or wish to buy real estate in Southern California, turn to an award-winning real estate agent, Realtor Brittany Leighton. Call 949.480.7178.