- It’s possible to buy a house with bad credit, but you may end up with a high mortgage rate.
- If your score is above 580, you can look into FHA loans, VA loans, and USDA loans.
- If you can’t get approved for a mortgage right now, though, don’t worry — there are ways to increase your credit score to become a more attractive borrower.
Get copies of your credit
Understanding your credit history is key to understanding what’s affecting your credit score. Getting your credit report can help you figure out any discrepancies so you can report errors, pay off debts, and boost your score.
You’re entitled to a free credit report from all three major credit bureaus every year. Go to AnnualCreditReport.com to find out more.
Consider a HUD loan or speak to a housing counselor
Speaking with a housing counselor from a HUD-approved agency can help you understand different parts of the home-buying process, such as lending options and how to close on a house, and how your credit score will factor in. You can search on HUD.gov for HUD-approved housing counseling agencies in your state.
Consider an FHA loan
An FHA loan comes from a traditional mortgage lender and is insured by the Federal Housing Administration. You may be able to qualify for an FHA loan with a minimum credit score of 580 and a 3.5% down payment. However, not all lenders will approve you, as some have higher credit score requirements.
FHA loans allow borrowers with down payments as low as 3.5% to qualify for mortgage loan programs, as long as their credit scores are 580 or higher. For home buyers with scores between 500 and 579, it’s still possible to obtain a mortgage guaranteed by the FHA, but a minimum 10% down payment is required — for example, if you were buying a $200,000 home, you’d have to make at least a $20,000 down payment. If your scores are below 500, you can’t qualify for an FHA-insured home loan.
Consider a VA loan if you are a veteran
The VA doesn’t set a minimum credit score, but lenders typically prefer borrowers with at least a 620 score. The same is true for USDA loans, which are available to some borrowers in rural and suburban areas, though lenders tend to prefer borrowers with a score of 640 or higher.
Start saving for a down payment
Saving for a down payment will show lenders you’re serious about buying a house. Those with bad credit should consider setting aside a larger down payment, as it could help you get a better mortgage rate. While there are mortgages that accept down payments of 3.5%, aiming for higher is best.
Low- to moderate-income borrowers in eligible rural areas may be able to find a loan through the U.S. Department of Agriculture.
Some states and local governments also offer programs to facilitate home ownership by offering eligible borrowers the opportunity to get a home loan with bad credit.
Bottom line – Qualifying for a mortgage with bad credit is possible, but you’ll need to carefully compare mortgage terms and may want to consider an FHA loan to get reasonable rates.
For over 35 years, listening to clients and putting them at ease, while finding solutions and helping achieve future goals, in Marion County, Lake County. Citrus County, Sumter County, and The Villages.
