by Charlotte Wood
(last updated February 21, 2009)
Especially in today's world, you always hear so much about credit—the pros of having good credit and the cons of having bad credit. The bias is obvious: you want good credit because then you'll get good interest rates and ideally fulfill the consumer-materialistic part of the American Dream. Becoming a homeowner is also a part of the American Dream and unsurprisingly those two concepts—credit and home buying—go hand in hand with each other as they can both help determine what happens to the other.
Bad credit essentially means signing to higher interest rates and infers that it will take hard work and financial discipline to rebuild your credit to the place where you are comfortable. These higher interest rates accompanying bad credit extend to influencing credit card applications, loan applications, rent agreements, mortgages, and even employment in some cases. Credit is a big deal and a fact of life that shouldn't be taken lightly. You can usually almost get some kind of home loan with which to buy a house, but the consequences could be disastrous.
As established, the worse your credit, the higher your interest rate—and that plays heavily into deciding whether or not you personally can afford a mortgage. The interest on your home will inevitably be high and so then you need to assess your own financial situation. In many cases, you won't be able to afford the home loan and should work on rebuilding your credit and try for a mortgage another time.
If you feel like you can afford to close on a house, do be aware that mortgage payments could mean a few more years of stretched income and you don't want to risk falling into unmanageable debt. Buying a home with bad credit has a high possibility of leading you into even more dire financial straits. Be prepared with what you're going to do and don't think that financial hardship is averted.
Buying a home is always exciting and a step that is paramount in that quest for true independence; it symbolizes much in our culture, but you should never enter into an agreement you know you won't be able to keep. With a higher interest rate because of bad credit, your payments will be higher, resulting in the greater possibility that you'll be unable to keep up with your financial obligations. While technically you can buy a home with bad credit, it's hard and should be given substantial consideration.
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