If you think a vacation home is out of the question if you have bad credit, think again. You may have some options.
Imperfect credit can happen to anyone — but those who are willing to work to improve their credit and are dedicated to achieving their financial goals might find that bad credit doesn’t always have to be a dream killer. So, if a vacation home is on your bucket list, let’s talk about how you can work towards making it happen, even if you’ve had credit problems.
How to Buy a Vacation Home If You Have Bad Credit
1. Save Up for a Large Down Payment
This possible solution takes the longest, but it also puts you the most in control. Simply put, the more money you have to put down, the less credit you need. And the less credit you need, the easier it might be to get approved for that mortgage.
So, if you’ve got a few years before you want to take the leap and you have a savings plan in place, you have an opportunity to improve your chances of landing that vacation home if you use the savings for a large down payment.
2. Buy the Home Jointly With Trusted Loved Ones
If you’d like to make it happen faster and you have family or friends whom you trust very much, you could consider purchasing a vacation home together.
This is not only possibly a way to get into new credit more easily, but it could also be an opportunity for your group to invest in an area each individual might not be able to afford on their own. Even better if you can potentially turn it into rental income for the entire group to split when no one is using the home.
What’s more, if the group stays current on the mortgage, all involved may see an improvement on their credit profiles. That’s because a positive payment history has a large impact on your credit scores — and anyone on the mortgage will get to benefit from that.
3. Have Your Spouse Take On the Mortgage
Another option you have, if you’re married, is to have your spouse take on the mortgage without you (assuming your spouse’s credit is in better shape than yours). Contrary to what some believe, married couples do not share credit except for the credit they put in both of their names.
That means one spouse can possibly take on new credit if the other has bad credit.
4. Look at Foreclosures For a Better Deal
If you’re willing to take on a home that might need a little TLC (and have the cash on hand to cover those repairs), a foreclosure might be a good option for you. Sometimes buying a foreclosure helps people get into a home that they might not have been able to afford otherwise.
This isn’t always the case, however, as homes sold at public auction need to be purchased in cash. If you want to try the route of purchasing a foreclosure with a mortgage, talk to your real estate agent about real estate owned properties and homes being sold as short sales.
5. Consider Lesser-Known Vacation Spots
Finally, you can potentially close the gap between now and when you can afford your dream vacation home by looking at places to buy that haven’t yet hit peak popularity. Maybe it means looking just one town over, or maybe it means considering a whole different part of the country (or world!).
Either way, lowering the cost of the home you want to buy makes it easier to save up for a large down payment and, if you can keep the mortgage low by applying that large down payment, it could make it easier for you to get approved.
Cleaning Up Your Credit in the Meantime
While you’re working on one or more of these options to get into a vacation home with bad credit, remember that you can start taking small steps in the meantime to improve your credit. In fact, doing so could give you the one-two punch you need to secure a mortgage.
Here are a few things you can do right now to improve your credit:
- Make all of your payments on all of your bills on time every single month. Payment history is the most influential factor in your FICO® and VantageScore® credit scores.
- Turn your savings priority into a debt paydown priority if you’re carrying credit card debt. Credit utilization is the second most influential factor in your FICO® and VantageScore® credit scores.
- If you trust yourself not to use it, ask your credit card company to increase your credit limit. Getting a higher limit decreases your credit utilization ratio quickly, a move even more effective if you also pay down large amounts of your debt.
- Pay off any debt in collections that might be dragging your score down.
- Clean up any mistakes you find on your credit reports. That way you can be sure your credit scores aren’t suffering for no reason.
Following the steps above may help you clean up your credit while you look at the best way to prepare to buy a vacation home, and you might just find that the timing works in your favor.