How to Buy a House With Bad Credit

Buying a house with a bad credit score Is easy when you have the right tools.  And that is what this guide will help you with.

The easiest way to buy a house with bad credit is to see if you apply for a government backed loan like the FHA and USDA options.  These two loans are designed specifically for people with bad credit scores making them easier to get approved for when compared to a traditional loan with a bank. And if you don’t want a government backed loan, don’t worry, traditional lenders are still an option.

A bad credit score does not have to stop you from buying a home.  Lenders like banks look at multiple factors including your annual income, debts you or you and your significant other owe, and any additional assets you have in order to determine if you qualify. 

Even if your credit score is below 660, there are multiple options for funding.  And the good news is that once you have your pre qualification letter, your credit score will no longer matter and you’ll be on your way through the closing process.

Let’s get your “foot in the door” and review some of the loan options and non-loan ways you can buy a house with bad credit.

Home Loan Options for People With Bad Credit

Each kind of loan has its positives and negatives, so let’s take a closer look at each one.

FHA (Federal Housing Administration) loans allow you to become a homeowner even if you have a weak or bad credit.  Some of the benefits of FHA loans include a low down payment, lower interest rates, low debt-to-income requirements, and lenient credit score requirements.  FHA loans also have a few drawbacks like mortgage insurance premiums and restrictive loan maximums.

If you’re an eligible active-duty member of the military, veteran, or surviving spouse, VA loans are an option for you.  These loans come with a long list of big benefits like no down payment, no mortgage insurance, lower interest rates, lower closing costs, and low debt-to-income requirements.  With VA loans, there are some property restrictions and you will pay a funding fee at closing. 

USDA loans offered by the US Department of Agriculture are an option for you if the property you want is located within certain geographical areas outside the city limits of major metropolitan centers.  The advantages of USDA loans are no down payment, sellers are allowed to pay closing costs, low interest rates, they can be used to build, and flexible credit guidelines.  The geographic restrictions, income limits, and private mortgage insurance are all disadvantages of this type of loan.

How to Get a Loan With Bad Credit

If you want to go the non-government route and take a loan, you can.  Cash is king when it comes to traditional lenders, and a substantial down payment can offset your bad credit.  If you have a family member or friend with good credit, see if they’ll co-sign on your loan.  There are also home buying assistance programs from HUD (Department of Housing and Urban Development).  You can look up to see if there is one in your area here.

Another option could be a rent-to-own or lease-to-own agreement if you’re not in a rush.  You’ll be living in the home and paying rent like you would to a landlord, but once specific contractual obligations have been met, you can have the option to buy the house even if you have bad credit.

See, there is no reason to panic.  You can buy a house with bad credit using government loans, by showing lenders you are able to pay them back, or buy starting out as a renter.  There are options.  And once you are ready to close, contact us to help with everything from the title search to closing services.