How to Buy a Home with Bad Credit
We work with over 60 different lenders and we have the ability to get anyone with a job a home of their own.
Buyers with a low credit score or bad credit overall will be a little more difficult, since lenders are afraid of defaulting on the loan. However, it is still possible for buyers with bad credit to purchase a home.
Top 5 Tips for Getting A Loan With Bad Credit or No Credit
1. Get Your Credit Score - It’s important that you have this handy so the lender is able to determine your eligibility for a mortgage loan. It is a 3 digit number that shows your history of credit, as well as represents you buying and paying back certain debts. You are able to view this score for free through most credit card companies and free reporting websites. We work with lenders that can help you figure out your credit score.
2. Maintain A Steady Income - Lenders want to make sure they are making a good decision when giving you money to purchase a home, so they want to verify that you have had a steady source of income for over 2 years. Lenders also want to make sure that with this income you have enough money to pay other expenses, such as food, utilities, credit cards, etc. By reviewing your expenses, lenders are able to justify that you can afford a mortgage payment.
3. Reduce Or Eliminate Your Debt - Focus on reducing the amount of debt you owe currently. Really focus on the debts that are overdue. For instance, if you have a student loan payment that is 120 days overdue, pay that debt first. Debts that are over 90 days delinquent have a higher chance of affecting your credit score more than debts that are less than 90 days. Continue to always pay at least the minimum payment on all of your debts on time.
4. Adjust Your Debit To Credit Ratio - In order to better your chances of getting approved for a mortgage, make sure the ratio of debt you owe is lower than what you have available to spend (credit). Lower the amount of “revolving debt” you owe by paying each monthly payment on time. Revolving debt includes credit cards, student loans, and other lines of credit.
5. Be Prepared To Pay More Interest On Your Mortgage - When you have bad credit or a low credit score, lenders who approve you for a mortgage will offer a higher interest rate or a subprime mortgage to compensate for the risk of the loan defaulting.
Applying For A Mortgage
Talk To A Lender - Always talk to a lender before seeking out a home. The lender will offer a the maximum amount that you qualify for so you can use to purchase a home. Waiting to speak to a lender first will help you find a home within your price range.
Look Into An FHA Loan - The Federal Housing Administration can offer you a loan if you don’t qualify for a traditional mortgage. Credit scores as low as 500 qualify for an FHA loan.
See If You Qualify For An FHA Loan
Provide An Explanation Of Your Bad Credit To Lenders - When talking to your lenders, provide reasons for your bad credit history. If you have proof of on time payments within the last 12 months as well as proof of a steady income, bring this in to show your lender. Your lender will be more understanding of your circumstances with proof of your on time monthly payments for future loan payments.
Inquire About A Lease To Own Agreement - When you do not qualify for a traditional mortgage, or you cannot afford the down payment on a FHA loan, you can ask your realtor about a lease to own agreement. Most lease to own agreements last anywhere between 1 to 3 years, which will allow you to save enough money for a down payment and improve your credit history over this period of time.
Find A Possible Co Signer For The Mortgage - If you have family or friends with good credit, you can ask them to co sign your mortgage loan for you. In this case, you will be more likely to get approved for the mortgage. Just remember that if you skip out on paying your mortgage, your co signer will become responsible for your payments and you will lose your mortgage loan, as well as your home.
Grant Programs - grant programs are a great resource if you don't have enough money, as well as other no money down options. Click here to see 4 ways to put no money down on a home.