How To Buy A Home But Have Bad Credit

Credit scores are not just a number. They are an indicator for how likely you are to pay back money that has been loaned to you. On the smallest scale are personal credit cards and on the larger scale are mortgage loans. Big purchases are made possible by lenders who aid you with lump sums of money that you must pay back with an added fee or interest. The best interest rates are reserved for those with high scores, like a 700-850 score. 

The credit score isn't the only thing that mortgage lenders look at when deciding if they will lend to you and on what conditions. But it holds a lot more weight when you have bad credit. What is considered to be a bad credit score varies by credit bureaus and lenders but below 500 is a minimum score for many. Some require at least 600. So we'll go over ways to buy a house, or secure a mortgage loan, when your score is between 500-650. 

Build Your Credit 

If you are not looking to buy a house for another few years, you have time to fix your credit before applying for a loan. The major indicators of credit are as follows: number and type of accounts, length of credit history, payment history, and amount owed. 

The most important of those is that you pay your bills on time, and have not missed a payment for longer than 30 days. This will cause a delinquent mark on your credit score that will stay for seven years. Payment history proves that you make your minimum payments on time and that you have not neglected your credit. 

The longer you go without a missed payment the better. Length of credit history is determined by how long you have had your accounts open, which shows that you have experience. So simply waiting can dilute any delinquent marks as well as increase trust from a lender. 

The amount of debt you currently have as well as your income status indicates how large the loan or credit limit because it shows how much you're capable of paying. It takes a few years to work on your credit and it may take months for the results to show, so the sooner you help your credit, the better. 

If you have cash, it will help you as well for down payments towards purchasing a home. 

Save More Cash For A Bigger Down Payment 

The more money you can use for a down payment, the less you need to borrow. This means that you will be less serious of a risk since the loan amount will be less. That's not to say that you'll earn a good interest rate, but a larger down payment will help you secure a mortgage when your credit score isn't great. 

Typically, mortgage lenders will require a certain percentage of the property cost as a down payment if they will even consider lending to you. A score of 500-600 will most likely require 20% or more down for conventional loans. So start saving as soon as you decide you would like to be a homeowner because you will get a leg up. 

Hire A Mortgage Broker To Look Into Your Options 

Mortgage brokers receive wholesale rates from lenders and therefore can offer lower rates. With a bad credit score, you will still be limited because it's ultimately down to the lender to decide but all options can be pursued. 

A mortgage broker will know which lenders are more likely to work with you and will file your documents for you, making the process much more simple. They will have many options and knowledge about different available lenders. And a more lenient, or small mortgage lender, may look at other qualities of your credit history that detail your past in a more positive light than your low credit score. 

A few other options remain, like applying for a government-issued loan like the FHA loan, which has lower down payment requirements and allows lower credit scores. If you are active or retired military then you can apply for a VA loan, which allows you to borrow without a down payment. 

Conclusion

There are many options so start now and make some positive changes for your future as a homeowner! Don't let your bad credit get in the way of you owning a home someday.