Are you nervous about being a first-time homebuyer? Moreover, are you planning to apply for a home loan but are worried about your credit record? A home loan is a significant financial commitment on the part of the customer and a significant long-term investment by the lender. Having bad credit is a big barrier in the way of being approved for a loan and it is wise to take steps to improve your credit record right away. How to buy a house with bad credit?
Is it possible for a first-time buyer to get a loan with bad credit?
It is very difficult to get home loans with bad credit, even if you are a first-time buyer. Lenders do not want to risk giving loans to customers who already have demonstrated poor credit behavior and might possibly default on EMI payments. However, each lender has a different set of requirements and criteria for sanctioning loans. So it is possible that even if multiple lenders reject you, you might have a small chance to qualify with a different lender who has different requirements.
Generally, if you have a credit score below 750, it is difficult to get approved for a loan.
What are the disadvantages of being a first-time buyer with poor credit?
There are several disadvantages to applying for a home loan with a poor credit score:
- If your loan application is rejected by multiple lenders because of your credit record, each rejection will cause your credit score to drop further and damage your credit profile. If you are rejected four times before being approved by the fifth lender, your credit score will decrease four times with each rejection. This means your score will keep decreasing just by attempting to apply for a loan.
Even if your application is approved, a low credit score means that you will not be able to avail of the more attractive offers on the market. In order to safeguard their money, lenders might offer you a loan with expensive terms and conditions such as a higher interest rate, shorter repayment period, or a small loan amount which might make repayment difficult.
If I have a poor credit record and want a home loan, what should I do?
It is possible to turn around your credit situation so that you are eligible for the home loans of your choice. First, you need to concentrate on improving your credit score to at least 750. This can take an average of 4-12 months, depending on how serious your individual credit situation is. Once you improve your score, you are in a much better position to have your loan approved and avoid the chance of rejection. A higher score means that you can avail of more attractive terms that will lighten your EMI repayment burden over the 10-30 year tenure of the loan.