Poor Credit Causes Some to Wait 10 Years to Buy a Home

Deciding when to buy a house — if ever — can be difficult. Having enough money for the many expenses of owning a home is obviously a top concern: a down payment, monthly mortgage payments, insurance, taxes and maintenance, among others.

How good of a credit score can also be a factor, since a good credit score can lead to a lower interest rate on the loan, while a low score can leave you with a high rate for 30 years — though you can refinance to a better rate in a year or so if your credit score improves.

Waiting to buy a home while you improve your credit score can be a smart move. However, if home prices move up during that waiting period — as they historically have except for the housing crash of 2006 — then you may end up paying more than you would if you bought immediately with a poor credit score.

Waiting 5-10 years to buy a home

Low credit scores have led some homebuyers to delay or completely forego a home purchase, according to a national survey by Experian, one of the three main credit reporting agencies.

It found that one in five people reported that they were likely to opt out of the loan process or purchasing a home altogether for the next five to 10 years. Of those deciding to delay a home purchase, 45 percent said the delay was made in order to secure better interest rates.

Better credit scores not only get some homebuyers into the market later, but also allow them to spend more money on a house.

The survey found that 29 percent said they would buy a more expensive house if they had better credit and could qualify for a larger loan. But 35 percent of future buyers said they don’t know what steps to take to qualify for a larger loan.

Housing prices rising

While it’s impossible to know what the housing market will do in the next year or five to 10 years, or even the next month, history shows that it either stays constant after adjusted for inflation, or since the 1980s has risen steadily except for the housing crash of 2006.

House prices hit an all-time high in 2006. Since then American home prices have recovered nearly all of their losses since that crash, on average, according to the Economist.

Low interest rates have helped cause property prices to increase by allowing more people to get cheaper loans. But when adjusted for inflation, home prices are still 20 percent below the 2006 peak, according to the Economist.

What to do about poor credit

If poor credit is causing you to put off buying a house, then doing things to improve your credit score can help make getting a home loan easier.

“Your credit profile is one of the factors that can have a substantial impact on securing a home loan because it is used by lenders as an indicator of your financial health,” says Rod Griffin, director of Public Education at Experian.

“Consumers planning to purchase a home should check their credit scores and reports to see where they stand,” Griffin says. “From there they can develop a financial plan so they are in the best place to try to secure the loan they desire.”

Paying off debt can cause credit scores to rise, as can paying bills on time. The Experian survey found that almost 70 percent of survey respondents are paying their bills on time and 60 percent area paying off debt.

It also found that 28 percent of future homebuyers are keeping balances low on credit cards and 15 percent are taking steps to protect their credit information from identity theft and fraud.

Taking such steps to improve your credit score shouldn’t take five to 10 years to complete. In a year or less, sometimes as quickly as 30 days, they can raise a credit score enough to qualify for a better home loan rate.

And that may be all you’ll need to afford a home — if you’re prepared for everything else that comes with owning a home.