As you are probably already aware, your credit score can impact almost every aspect of your life. A low score may prevent you from renting an apartment, gaining access to credit cards, or even landing the perfect job. A less than perfect credit history can also keep you from buying a home.
Can you buy a house with bad credit? Well, it won’t be easy. Most lenders look for scores at least in the 700s. However, there may be a few ways you can be approved for a mortgage with a lower score. If you’re looking for information about how to buy a home with bad credit, read on.
Mortgages and Your Credit Score
We’ve established (as have you, through your research) that the higher your credit score, the more favorable your mortgage terms will be. That assumes, of course, that you’ve got a good enough score to obtain a mortgage in the first place.
Most lenders will agree that a score of 740 or higher is pretty much going to guarantee you’ll be qualified for a mortgage of some type. While a perfect score is 850, not a whole lot of people actually achieve that goal.
A score in the mid 740s and up will tell lenders a few things. First of all, lenders will know that you’ve got a history of paying your bills on time. A higher score will also signify that you’ve got a good balance of revolving credit and installment loans, like credit cards and car notes, respectively.
That having been said, even a score less than one in the 700s can qualify you for a mortgage. In fact, there are loan programs that people with scores as low as 580 can obtain! As you can see, you don’t need to have perfect credit to buy a new home. All you’ll need to do is a little bit of research.
How to Buy a Home with Bad Credit
If you have thousands of dollars of credit card debt, student loans and installment loans that you’ve not paid on time, your chances of approval for a mortgage will probably be pretty slim. That’s true even if you’ve somehow managed to keep your score in the 600 or 700 range.
To put it simply, loan officers look at more than just your credit score. They’ll take into account your income, your existing debts, your past bankruptcies and more as they determine whether you qualify for a mortgage.
Before you even consider applying for a home loan, you’ll need to make sure all your finances are in order. You’ll need tax statements, knowledge of what’s in your credit report, and an understanding of your credit score. You’ll need proof of income, and if your credit score is low, it’s a good idea to have held a job for at least a year. Self employed? Two years is more favorable, with accurate profit-loss statements.
Finally, you’ll need to know what you can afford. This means three things. First, the size of your down payment, including any origination fees and closing costs. Secondly, the amount of your monthly payment. Thirdly, you’ll need to talk to your loan officer about the difference between ARMs and fixed rate mortgages.
Been keeping track of your finances for long enough? Everything in order? Here’s how to get qualified for a mortgage with bad credit.
Mortgages with Poor Credit Scores
Congratulations on your decision to buy a new home! Sometimes, the difference between renting and owning can, literally, mean the difference between paying your housing bills on time and eviction. When you own your home, you feel more obligated to keep up with it.
Ready to learn how to get one of these poor credit score home loans? Well, the first place you should check is with government agencies. For instance, if you’re a military veteran, there are VA loans available to you which may not even require a down payment. In some rural parts of the United States, the FHA will sponsor loans for those with bad credit.
Don’t know which government loan you might qualify for? Visit your local Housing and Urban Development. This organization will be able to point you in the right direction toward home loans you may qualify for. They may even be able to offer options for housing that are priced below market rates.
If, for some reason, you don’t qualify for government programs, you can look into private lenders. Most of the “Big Banks” will require that you have a credit score at least in the 740s. However, there are other private lenders that do not.
As you search for private lenders, be wary of several things. First, some may require that you pay origination fees upfront. However, it’s our experience that this shouldn’t be necessary. A good lender will incorporate additional costs into the principal of your loan.
Secondly, beware of interest rates. While a lender may offer you a low initial rate, an adjustable rate mortgage can be quite dangerous. Your mortgage payments could become more than you can handle if the rate becomes too high.
Finally, simply, always be sure your lender is licensed by checking with the Department of Real Estate.
Can I Buy a House with Bad Credit?
It’s not easy to get a mortgage if you have poor credit. However, it’s certainly not impossible! Check with government programs in your state or region, and see what suggestions departments like HUD can offer you. If you’re already living in public housing, a program like HOPE may be just the solution you’re looking for.
As you explore the options available to you, you’ll find that even with poor credit, you can get into a new home. Sometimes it’s as simple as paying a larger down payment on a house, or applying for first time buyer programs. As always, continue to monitor your credit score and a new home can be in your future!
And if you found this article helpful, make sure you take a look at some other guides of ours that can help you on this subject and more. We have a guide to Household Credit Card Debt, Debt Settlement Programs, Bankruptcy and Your Credit Score, and How Credit Card Interest Works. You can also find more by taking a look at our blog and our reviews.