How To Buy A House With Bad Credit

A house is one of the most significant purchases most people make in their lifetime. Owning your home is a source of pride and gives the owner a sense of accomplishment. Therefore, it’s no wonder that most people would wish to own a house at one time in their life.

However, due to a low credit score, the dreams of owning a house are significantly dimed. But, having a poor credit score doesn’t have to kill your dreams to own a home.

Credit score rating:

800+ = Exemptional

740- 799 = Excellent credit

680-740 = Good  credit

620-679 = Fair  credit

580-619 = Poor credit

579 – 300 = Bad credit

Here are incredible ways in which you can buy a house with a bad credit score.

1. Consider Federal Housing Administration loans

This is the most favorable option for persons with bad credit. The Federal Housing Administration (FDA) loans offer excellent options for people with low credit score and low down payment options.

If you have a credit score of 580 and above, you qualify to get a house loan with only 3% downpayment. If your credit score is between 500 to 579, you need to put down 10% down payment.  But, with a credit score of less than 500, you may have a harder time qualifying for the FHA loans.

2. Are you a US Veteran? Consider the Department of Veteran’s Affairs

  • Did you serve in the army and had an honorable discharge?
  • Alternatively, did you serve in the reserve or the National Guard for at least 6 years?

If you’ve answered yes to either of the above questions and you can prove it with documentation such as the DD-214, you might qualify for the Veteran Affairs (VA) loans program. The VA loans don’t have a particular credit score requirement. Therefore, they might be an excellent option for you if you’re struggling with bad credit.

3. Do you leave in the rural? Check out the Department of Agriculture (USDA) lending program.

Who knew where you live might be an advantage if you have a low credit score. Well the USDA program offers loan options for people living in particular approved zip codes and want to buy a house in an approved location. Check whether the USDA approves your zip code and the location of the home you’d like to purchase on their website.

These loan options also don’t have a specified credit score requirement. However, you need to satisfy a few income qualifications. Check their website to find out more about the USDA loans.

What if You Don’t Qualify For Any Of The Above Options?

Check your credit score

Almost all mortgage lenders will have to check your credit score to decide whether you qualify for a loan or not. It’s your responsibility to check your credit score before approaching any private lender.

When you get your credit score from the three major credit bureaus, pick the median one. It’s the one private lenders will mostly use.

Fix your credit report errors

Often, credit reports have errors that might tank your credit score. So, immediately you receive your credit report, go through it keenly. If there are any errors, ensure to follow-up for them to be rectified. This might help to boost your credit score, consequently improving your chances of qualifying for a mortgage.

Improve your credit scores in other ways

As you make an application to correct the errors, find different ways to improve your score. These could include:

  • Pay for any collection and ask the lender to delete the collection from the report
  • Paying down your credit balances to decrease the utilization ratio

Do anything else you think will help improve your credit score since all these increase your chances of qualifying for a loan.

Find a lender who can work with your low credit score

Look for a lender who is willing to work with your bad credit score. Note that you are likely to be turned down by several lenders. However, check crediful for lenders who might be willing to help you get to own a house.

Find an agent and start house hunting

Once you get a lender, who is willing to work with you, get pre-approved. To do this, the loan officer will need to confirm your income statements from your credit report.

Finally,  if you have bad credit, be ready to put down a larger down payment, usually 20%. Many private lenders will be willing to approve your loan even if you have bad credit if you’re ready to put down a large downpayment. Additionally, ensure that you have no late payments in the last 12 or so months. And, your debt to income ratio is as low as it can — all the very best in owning your home.

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