Building up an excellent credit history takes a lot of time and effort. Sometimes, however, situations arise that make it hard for a person to maintain an outstanding record. When this happens, the credit score crashes down fast.
It can jeopardize all those years of building up a clean record in just a matter of months. This will affect many financial transactions along the way. That is why people have many concerns when they have a low credit score and bad credit report. “How can I sell my house with bad credit?” is a question we always hear in real estate transactions.
Selling a house is not related to a person’s credit score. Hence, you can sell your house even with poor credit. But, the sale can still impact your credit history and may affect your future transactions as a borrower.
Credit scoring done by lenders and other financial institutions is a statistical analysis of a person’s ability to handle credits and loans. A person’s credit score determines whether they are trustworthy enough to receive a credit or be denied by the institution.
The credit score impacts a person’s ability to transact financial assistance and loans such as credit cards, mortgages, and auto loans, among others.
Two credit scoring models are used today: the Fair Isaac Corporation or FICO Score and the VantageScore from credit reporting agencies Equifax, Experian, and TransUnion.
As an individual, your credit score is influenced by these factors:
Yes, you may if you find a good home buyer. The real estate market has many rules and regulations, but most often, it does not hinder anyone from selling a property. You can sell your house even with a poor credit report and profit from it. But, it is also important to note that it can impact your credit history along the way.
Let’s say you have delayed mortgage payment, and it impacted your credit terribly. The failed payments will be recorded on your history and stay there for seven years. The record will remain even if you sold your house and make a payment in full.
The recorded missed and delayed payments will have a future impact on your next financial transactions.
They can also be grounds for declining a home loan when planning to purchase a new house unless you work on rebuilding your credit score first, come up with a larger down payment, or go through a lender that can help you secure a Federal Housing Administration or FHA loan instead of a conventional loan.
One advantage of selling your house when you are in debt is to reduce the number of active loans you have and lower your overall monthly payment.
Once you sell your house for a good price, you can use the money to pay off some or all of your active loans. If the money you get is not enough to pay off a debt, you can still use it to reduce what you owe.
For multiple credits and loans, paying off a credit card with the highest amount close to its credit limit is the best way to move forward. It will help improve your credit score since 30% of the credit score is about the amount you owe.
A short sale happens when you sell your house for less than its current mortgage loan or the cumulative amount of its existing liens and encumbrances.
Selling your house with negative equity in a short sale negatively impacts your credit score. This unfortunate sale will cause your credit score to drop drastically. When you sell the property for less than its mortgage, you are left with a balance on the mortgage loan. This balance will be reported by the lending or financial institution to each credit bureau.
The mortgage lender may also raise legal claims against you to get the remaining amount not covered through the sale. But, if you are lucky, the lender might just write off your balance.
After all the explanations above, can I sell my house with bad credit with minimal risk?
Sales always contain risk, no matter what the thing you are selling is. Since the real estate industry is like murky water, you must be able to understand all the legal issues it comes with. Consulting a professional is always a great idea, but what if you can’t afford to pay them? Here are some of the guidelines we have prepared for you to do:
The knowledge of your home’s true market value will give you a lot of advantages in selling. If you do not know how to calculate it, there are free home value estimators online. You will input details about your home’s features, as well as the location of the house.
But note that an online estimator does not give you the exact estimate of how much the buyer will pay for your property. There is always a margin of error in the computation. The buyer can still negotiate the price with you.
Technically, you are not the sole owner of your house if you use it as collateral on a home loan. When selling a house under a home equity loan, contact the lender to know how much your outstanding balance is. Learning about your payoff amount will give you a rough estimate of how much you can price the house.
How can I sell my house with bad credit and still profit?
Profit is not always guaranteed. Once you know your house’s true market value and the payoff amount to the lender, you can calculate beforehand if you can earn from the sale or not.
Aside from the market value and payoff amount, you must also consider agent commission and the estimated closing costs. The agent commission is usually around 6% of the sale, depending on your locality. Closing costs range from 1% to 3%.
Take note that the profit you calculate at this point is just an estimate. You’ll never know the accurate profit until the closing sale.
Now that you know the numbers, you can list your house. Finding a real estate agent is mostly recommended because they know the industry and can provide you with professional guidance throughout the process.
Once you list the house, potential buyers will come to you for an offer. Accepting an offer will result in many other steps, such as inspection and appraisal. An appraisal is often done if the buyer uses a financial institution to purchase a house. If you find a cash buyer, you no longer need to worry about the appraisal.
A third-party escrow company will also come into the picture and communicate with your mortgage lender about the balance. The seller is not required to inform their lender when an offer is made. Just make sure to update your payments as usual without missing any, and the escrow company will do the rest.
The settlement statement shows all the costs and fees related to the sale of your house. It includes the price of the property, payoff amount, closing costs, agent’s commission, taxes, recording fees, and other charges. It will also show how much money you earn from the house if any.
Having bad credit is stressful as it is already. What more if you have to sell your house?
Some homeowners who don’t want to fuss over the sale would resort to selling it for cash. That way, they won’t have to deal with many things related to traditional home selling. Looking for cash buyers will keep the selling process more convenient and faster.
Unfortunately, looking for a reputable cash buyer can be tricky. Thus, you must practice your due diligence and do your research properly. It is also advisable to ask friends or families for their recommendations.
Once you pick a cash buyer, check their record to see that no warnings or scam alerts are connected to their name. Also, do not be afraid to ask questions if some things are unclear to better understand the deal you are making with them.
Selling your house for cash, especially when you have bad credit, has its pros and cons. Weigh these advantages and disadvantages to see which works best for you. For someone who wants to finish the sale quickly and without much stress, selling to a cash buyer is the best option to go.
Quit thinking about how to:
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