If you’ve been prone to overspend or not pay your bills on time, there could be a good chance you may have developed a bad credit rating. Years of making short term financial decisions or being too laid back with your finances can come back to haunt you when it comes time for you to start thinking about settling down and buying your first home.

Before you start to think it is all doom and gloom, hope is not lost! You still might be able to get that dream home you’ve been wishing for. If you’ve got a poor credit rating, here’s what you can do to achieve your home ownership goals.

Understand your situation:

Once you’ve made the decision to work toward owning your first home, the first thing to do is to understand why you have the poor credit rating you do and how bad the situation is. From unpaid bills and late payments, to unexpected finances and declined loans, there are a number of reasons why your credit history could be less than stellar.

Remember it is vital that you check your credit report before making any moves to get a home loan. If your credit score is less than 700, lenders will start to question whether you’re a risky investment, so going into this process fully aware is the only way to approach this.

Prepare to pay more:

In the circumstance that you have a poor credit rating, paying more interest and a larger down payment is often necessary. For those who have a credit rating under 600, a more substantial down payment will give your lender the confidence that you are able to shoulder the loan in spite of your credit history. A larger down payment of around 25-30% means you have greater equity in the home and will make you appear as less of a risk to your lender.

If you want to qualify for a home loan with a poor credit rating, you should expect to pay a higher interest rate in order to get approved. While agreeing to a higher interest rate may cost you more over time, it will enable you to take those first steps to owning your home and can be re-evaluated as time progresses.

Research specialist lenders:

An option for those who have a poor credit score is to apply for a loan with specialist lenders. There are various companies who offer loans with a much more lenient process, these are often referred to as non-conforming home loans. Specialist lenders will normally have certain criteria in place, such as a deposit of at least 10%, in order for aspiring homeowners to qualify.

Know what to emphasise to your lender:

Although many lenders look at automated systems to determine whether you will be an acceptable candidate for a loan, there is still a chance that you can prove yourself to be eligible. It is very important that you are transparent with your lender when applying for a loan, if you are trying to hide anything you are only going to make your lender more suspicious and it won’t work out in your favour.

In order to get your loan approved, make sure you are proving to your lender that you are financially stable in other ways, for example, paying rent on time for a long period of time or earning a high income, could help you prove that you are a less risky candidate.

When you apply for a home loan, the lender is going to look at your entire file, meaning your current credit accounts, credit cards and personal loans will be studied closely. By paying any additional debts off before applying for your home loan there will be one less factor that will work against you and will prove stability to your lender.

Final word:

A bad credit rating doesn’t mean it is impossible for you to get a loan and buy the house of your dreams, but it does certainly make it harder. Once you speak to a professional and understand your situation, it is time to make a detailed plan and get started on achieving the goal of home ownership and improving your credit rating. It may take you a bit longer than expected but when you’re in your own home it’ll all be worth it!