Once you have been through some sort of financial crisis, the next phase is recovering from the damage that has been done to your credit rating. Some people feel that the ideal way to escalate that recovery is to purchase property. The idea is that having a home loan that you pay faithfully every month will help to create a good reference and enhance your credit rating. However, this may not be the best approach for you. Here are three reasons why you should not go for a home loan if you have bad credit.
First, chances are you will not qualify for a good interest rate. That is not to say that you will be unable to get financing. In fact, there are many loan institutions that will be happy to sign you up for a high risk loan. The terms in these will not be favorable. Along with a higher interest rate, there will be stiffer penalties and often some extra charges built into the contract that would not be present in more competitive loans. Wait until your credit is better and then you will qualify for a loan with more favorable terms.
Second, following a large amount of money will affect how your credit rating is illustrated. The ratio between income and debt plays a big role in that calculation. If the total amount of the loan is significant and your income is mediocre, you could actually be setting yourself up for keeping your FICO rating in the basement. Even if you are making the payments like clockwork, your rating will not rise significantly for some time.
Last, you may not be emotionally prepared for assuming such a huge debt. Keep in mind that you have just been through a rough time financially. No doubt you stayed up nights worrying about how you would make it through. Give yourself a break and do not create a bunch of new debt just because the old ones are now settled. Use this time to enjoy yourself and not worry every time the phone rings. See it as an opportunity to begin putting a few dollars away in a savings account and to start getting your finances to a point where they are working for you. There is always time to look into buying a house later.