This might be difficult to hear, but if you have a “very” low credit score and high debt, you are not ready to own a home. Homes cost more than the monthly payment. You will have to budget for maintenance and repairs or you will soon be living in a dump, and your high debt is evidence that you don’t have a habit of budgeting at all. So step 1 is learn to spend less than you earn, step 2 stop borrowing, step 3 pay off all existing debt, step 4 save up to at least 5% of the purchase price of the home you want to buy (but 20% is best, if you can).
If you’re currently straining under a lot of debt, and you have bad credit, these steps will seem impossible. I would suggest something I did many years ago, which is a life reset. For me, it lasted about a year and a half - your situation may vary. It’s not fun, but the point is that if you’re disciplined, it is temporary and you will be glad you did it in the end. To reset, sell everything you have except the absolute bare necessities. If you’re young and single, this is easier, but a family CAN do it. I mean, no TV, cheap prepaid phone you barely use, go to the library for internet use, never eat at restaurants or fast food, and keep your groceries simple and cheap, sell your car and buy a cheap ugly one that runs good, cancel everything like Netflix, you don’t get to go out to clubs, concerts, etc., find free things to do for fun. Don’t spend money. If you can find a cheaper place to live, do it. If your living space is something you don’t enjoy, that’s actually good (as long as it’s not unsafe, of course), because if you hate it, you’ll be more motivated to hustle to get out of it. Now, live as cheaply as possible, find ways to increase your income, work extra jobs or overtime... HUSTLE. You have ONE mission: Get out of debt. Everything else is a distraction. Then save your down payment, and don’t forget to also save for closing costs, which you can estimate using the calculator on www.smartasset.com. The good news is that by the time you do all of this, your credit score will be much better. You will think you have no life, but it’s temporary, and if you’ll endure this pain now, the future will be better. If you don’t, you will struggle under the debt cycle your whole life, and that would be worse. Learn all you can about budgeting and money management.
If you move into a barely tolerable, cheap living arrangement, you might consider shortening the amount of time you have to spend there by considering a temporary home purchase (less home than what you ultimately want, but better than a depressing rental or living with your parents). You can usually buy a condo or townhome for far less than a house, so the down payment is less. So live in a barely tolerable arrangement until you can save enough for a cheap condo, but make sure it is one that will hold its value and hopefully increase while you live there. Now you’ve improved your living conditions while you continue to live cheaply and keep on pursuing your ultimate goal. Do resist the urge to furnish and decorate the condo. It’s still just a stop on the way. Just take care of it so you can sell it or rent it out when you’re done.
Good luck! I know you can do this! Anything is possible if you’re willing to try hard enough.
it seems wrong what you're saying about the consistent monthly amount to a saving account. If you rent an apartment you ALREADY pay for rent, so when you take a mortgage you start to pay this amount for a mortgage. That means if you were paying $1000 rent and consistently putting $1000 on your saving account, you can afford not $800 month mortgage payment, but at least 2 times more.
I feel, as most savers would feel, is that he wasn't trying to put a price tag on exactly how much to save for a down payment, but that you do save.
If your rent is 700... start with 10%. Your rent is now 770. That extra 70 goes into a high yield savings account. Did it hurt? Not too much I bet. Try 20%. 140 extra per month earning interest. Maybe less taco bell? How low can you go when you want to really save? When you really want that home?
Small savings add up to a lot over time. I live in an apartment that you would never want to visit. Bad neighborhood, rowdy neighbors, etc.. but I'm close to buying my first home with cash. And not a cheap one. It hasn't been easy, but I can see the finish line and it's thanks to people who told me to eat ramen noodles and stop going to see movies. Things of that accord. I am frugal now. I don't think it is going to ever change. I have money making me money and still live poor.
What job pays enough that you can honestly say putting away $1000 a month is even practical?? If you are not a CEO and making “at least” 80K a year there is no way. The average 2 income household can make that much but 1 person is nearly impossible. Please if you do point me in that direction even with my degree and experience I am no where near meeting that goal.
You do know that the banks that now give you that " high 2% yield " takes your money and invests it
into stocks, bonds and/or mutual funds that average 5-7%. They are basically using your money to buy
a pie and only giving you a third of it. As far as the extra money you might have every month, diversify.
Put a third of it into a safe haven like a savings account. Use another third to put into T-bills or mutual
funds that will give you a higher yield but slightly more risky. Use the last third and go for broke. Nothing
ventured, nothing gained. As far as a down payment for your home. There are a lot of programs out there
that offer loans with only 3% down. At the end of the day, You have to decide what you are willing
to live with or without to achieve your goal. Last thought. I've said this before. Have a well thought,
I like many have struggle with debt, but the problem for me was not me, but a sibling. At 18 I had 4 credit cards paid them off each month and was on my way to purchasing a house at an early age, but then..... my credit as stolen by my sibling who knew everything about me including my ssn. I sat on it for 11 years b4 everything had finally dropped to only turn around and she done it AGAIN. When I found out hat had happened the 2nd time I was Also going thru a divorce. I needed my credit but had nothing, but a 450 for a score. That was 4 years ago. I actively corresponded with all credit bureaus, finally had all of her charges removed from my credit and started from scratch. It’s been tough, but I’m finally on a path to purchase my 1st home. My score isn’t perfect 708, but I’ve done with 1 $500 credit limit card. Charge and pay off each month. No interest, no late fees, no insufficient payments, and no inquiries. Charge and pay in full. That’s my story. good luck
If I was trying to buy a farm/ranch how would I get the loan with my credit score at 637 and 599 in dept. I have never bought anything on time and I keep getting turned down for credit cards. Even the secured card what can I do. It just said based on your credit score at this time we can't give you one. I'm Disabled and get minimum of 800 a month but it's steady income. I work part time as a Manager and have been here since 2013 and have been trying to get a Farm/Ranch. Who will help me complete my dream.....
You can do something called manual under writing. That will allow you to get a ranch/farm without the use of a credit score. However, what worries me is your income depending on what you are buying that may not be enough.