If you have bad credit, you’re not alone. Nearly one in five Americans have a subprime credit score. More than one in 10 have a credit score below 550. Low credit scores can hold you back from many things, but can you buy a house with bad credit? Under certain circumstances, yes.
The Truth About Credit and Home Loans
Lenders are free to set minimum credit scores for loan approval. However, many lenders have no minimum requirements. That means some lenders might lend to you no matter how low your credit score is. These lenders assess a range of factors, including:
- The size of your down payment.
- Your overall debt.
- Your income.
- If you have any debts in collections.
Save the Largest Down Payment You Can
You’ll have a much better chance of securing a small home loan than a large one. Many lenders will take a risk on someone with no credit, but they don’t want to lend them too much. If your down payment can cover the remaining balance on your home, you’re good to go.
Expect High-Interest Rates
Lenders charge people with bad credit higher interest rates than people with good or excellent credit ratings. The extra credit they charge makes the risk they’re taking worthwhile. Make sure you’ve got the money to cover your mortgage payments at a higher-than-average interest rate. The last thing you want to do is default on your loan and further impact your credit rating. Remember, you can always refinance your loan to secure a better interest rate later on when you’ve had time to improve your credit score. The following tips can help you improve your credit score:
- Pay your bills in full on time.
- Pay down your credit cards.
- Don’t apply for new credit you don’t need.
Investigate Special Loans
Special loan programs can help qualifying people with poor credit scores become homeowners. Individual lenders might have their own criteria along with that set by the loan programs. Some of the most popular loans available to people with subprime credit scores include:
- Federal Housing Administration (FHA) loans: These loans are for first-time homebuyers purchasing a primary residence. You’ll need a credit score of at least 500 to qualify for an FHA loan.
- Veterans Affairs (VA) loans: These loans are for current and former members of the armed forces. They require no down payment, although some lenders charge a funding fee and set minimum credit limits.
- U.S. Department of Agriculture (USDA) loans: These loans let you buy a home with zero down payment in qualifying rural areas. Most lenders have income requirements and minimum credit scores of 640.
Buying a house with bad credit is difficult, but it’s not impossible. If you need help getting out of the rental market, speak to the friendly finance experts at The Tuttle Group. We can help you navigate the process so you can claim the keys to your new home sooner, without the stress. Fill out our online form to schedule an appointment with one of our experienced team members.
