buying a house with bad credit

[dwnloom]

Hello, I'm not sure if anyone can give me some advice, but here is my questions.......We are wanting to buy a house next year - October/November range. We have bad credit right now around 600. It is bad because of unemployment and dr bills - collections. We should have all of the collections/dr bills paid off by Jan or Feb. The houses we have started looking at cost around the 65,000 range. We make close to 100,000. So, income wont be a problem. How much should we have as a down payment? Will a 20% down payment help us get a loan? Do we have to wait till credit is higher? What steps would you take to get ready for this? Also, we would like to get a short term for loan - maybe 5 years?

Thanks,

Dawn

[Anna43]

I guess my suggestion would be to wait awhile longer to buy a house to allow you time to rebuild your credit and to save more for a down payment. Build a good emergency fund. Build savings beyond down payment because there are always a lot of expenses involved in buying a house and moving.

Unemployment is a ghost behind every shoulder these days so my first goal would be to build savings to the point you could survive another bout of unemployment and/or medical issues without falling into debt again.

So I think I would do a five year plan for purchase of a home. In five years the economy will hopefully stablize or do whatever its going to do and you will be in a better position to make the home purchase.

If your expenses are low enough you could potentially buy your $65,000 home with cash in 5 years or at least a 50% down payment with a 5 year loan.

[gmarie]

With a 100k income looking to buy a 65k house - I would live on rice and beans for a few years and pay cash for it!

[craftypam]

I cannot tell you anything about the credit score; but I can tell you the more you put down the more willing they will be to give you a loan. If you only put a small amount down; they will be afraid it would be easier to walk away.
The bank told us this. Things may have changed since we bought our house. Don't be afraid to call the bank and ask them straight.
Plus the more you put down the less your payments will be; so if an emergency were to come up financially you'd still be able to afford your payments. Start saving like crazy. The more you show you are now being responsible will up your chances.

[monkeywrangler71]

If you go in with a 20% down payment, looking for a mortgage equivalent to half a year's income you shouldn't be turned down for a below average credit score. The score is only one risk-assessment tool, which should be offset by your low debt to income ratio.

If it is at all possible within your budget, you should clear those debts in the next two months, rather than January/February. Having a full year of clean credit will improve your score and make a better impression on a lender who is looking at your report. Lenders are wary of issues on your credit report that are less than a year old.

[Greebo]

I agree with the suggestion to rent cheap for now, save as much as you can, and pay cash.

Credit don't matter when you bring cash to the table.

[miss_cas]

The easiest way to get your credit score higher is to get a credit card. If you have any compulsive spending issues or are still barely able to pay the bills, hesitate here. If you have the necessary self control, just charge your gasoline or a few items a month. Pay the credit card bill in full, on time. This will increase your credit score as long as you are paying your other bills (rent, utilities, loans) on time.

After over due debts are current/paid off, save all your extra income. While 20% isn't necessary, you could revisit the issue when you have 10% down and see what kind of rates you are offered. Some banks would not require PMI of certain customers. Credit unions offer consistently lower interest rates. Now is the time to shop around for financing then spend the $35 and try to get pre-approved after you have 10% down.