5 Ways You Can Buy a Home With Bad Credit
When it comes to purchasing a home, having a bad credit score certainly makes it more difficult.
Most lenders have strict requirements to minimize their loan risk, but there are options for those who have experienced financial hardship or who are working on repairing poor, past-financial decisions. Here are 5 ways you can still buy a home, even if you don’t have a great credit score.
1. Federal Mortgage Programs
The Federal Housing Administration (FHA) and Veteran’s Administration (VA) provide loans that have more forgiving qualifications standards and require low down payments for first-time home buyers. Consider working with a mortgage broker or a lender that specializes in these types of loans to find out if you are eligible. State and local programs may also be available, depending on where you live. Check with your local housing authority to find out your options.
2. Save For a Large Down Payment
While you are working on repairing your credit score, also aim to put money towards saving for a sizeable down payment for your new home. Even though having a low credit score makes you less favorable to lenders, you will appear less risky if you’ve been able to save diligently and by minimizing the loan amount you require.
3. Come Prepared
When meeting with potential lenders, bring along all documentation detailing your income and financial status. Your goal is to convince lenders that, despite your poor credit history, you have taken the necessary steps to responsibly carry a mortgage and are working on repairing your credit to purchase your new home. Bring your most recent tax returns, pay stubs, bank statements, a letter from your employer, verification that you’ve been able to pay rent on time, investment information – anything that will help convince a potential lender that you have the capacity to afford a mortgage.
4. Find a Co-Signor
While this is a viable option, it is generally not recommended. Having a co-signor (such as a parent or relative) with a more favorable credit history will improve your chances of finding a lender and will likely give you access to lower interest rates. However, it should be noted that the mortgage for your home will appear on both your credit reports and if you default on the loan, they become liable for repayment. In the same vein, if your co-signor ends up in financial trouble down the road, your home could be used as collateral. Proceed with caution when considering this option.
5. Shop Around
Large, national banks typically have very strict mortgage approval processes. Luckily, they aren’t your only option. Some smaller banks and private mortgage lenders are willing to take on riskier borrowers. Consider using a mortgage broker, who will shop around for your best options and will have relationships with lenders you may not come across on your own.
Even though there are ways to buy a home with bad credit, it is still important to consider whether it is the right decision for you. Before you buy a home with bad credit, be sure to address the reasons why your score is low in the first place. If you haven’t been able to start improving your score and developing good habits, it may not be the best idea to make a large financial commitment such as purchasing a home. Consider taking some time to repair your credit before buying a home – after all, it will save you money in the long run!
Have you purchased a home with bad credit, or did you decide to wait? Share your experiences below!