How to Buy a House with Bad Credit

It’s not impossible to buy a house with bad credit, but it will be difficult. You will need to find a lender that is willing to work with you and come up with a down payment that they are comfortable with. It is possible to buy a house with bad credit, but it will take some work on your part.

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Assess your credit situation

Your credit score is one of the first things a lender will look at when you apply for a mortgage, so it’s important to know where you stand before you start the home-buying process. A high credit score will give you a better chance of getting a low interest rate on your mortgage, while a low credit score could lead to a higher interest rate and could mean you won’t be approved for a loan at all.

Get a copy of your credit report

The first step is to obtain a copy of your credit report. You’re legally entitled to one free copy of your report from each of the three nationwide credit reporting agencies every 12 months. You can request your report online at, by calling 1-877-322-8228, or by mail using the Annual Credit Report Request Form.

Once you have your report, review it carefully to make sure there are no errors. If you find any mistakes, dispute them with the credit bureau in writing.

If you have bad credit, you’re not alone. According to Experian, “one in four consumers have negative information on their credit reports that could result in lower credit scores.” But there are steps you can take to improve your credit situation.

Identify your credit score

The first thing you need to do is find out your credit score. You can order a free credit report from each of the three major credit bureaus once a year at, or you can get your score from a number of sources, including, and If you plan to apply for a mortgage, be sure to check your score at least a few months in advance so you have time to correct any errors or omissions on your report and improve your score if necessary.

Look for government assistance programs

If you have bad credit, you may still be able to buy a house through a government assistance program. Programs like the FHA Loan, VA Loan, and USDA Loan are designed for people with less-than-perfect credit. These loans require a smaller down payment and have more flexible credit requirements than conventional loans.

FHA loans

The Federal Housing Administration (FHA) offers a mortgage program that allows buyers to finance the purchase of a home with as little as a 3.5% down payment.

buyers with bad credit may have difficulty qualifying for a conventional mortgage, but they should explore their FHA loan options first.

While FHA loans have some limitations, they can be a good option for buyers with bad credit, especially if they don’t have the resources for a large down payment.

USDA loans

The United States Department of Agriculture (USDA) offers a loan program that allows for 100 percent financing – meaning you don’t need a down payment. Low-income buyers in rural areas can qualify for these loans, which are administered by local USDA offices. To learn more about this program and see if you qualify, visit the USDA website.

VA loans

The Department of Veterans Affairs (VA) offers a home loan guaranty benefit and other housing-related programs to help qualifying veterans, active-duty service members, reservists, National Guard members, and certain surviving spouses buy, build, repair, or retain a home.

VA loans are available through approved private lenders, such as banks and mortgage companies. They are not issued by the VA directly. The VA insures a portion of the loan against losses in the event that the borrower is unable to repay it. This guaranty means that lenders are more willing to provide financing to eligible veterans.

In order to be eligible for a VA loan, veterans must have served on active duty for at least 90 days during wartime or 181 days during peacetime. They must also have been honorably discharged from the military. Surviving spouses of service members who died in the line of duty or from a service-related disability may also be eligible for VA loans.

There are some credit and income requirements that borrowers must meet in order to qualify for a VA loan. However, these requirements are generally more flexible than those for conventional loans. For example, VA loans do not require a minimum credit score like most other types of home loans do. Additionally, borrowers who have experienced financial hardship due to things like job loss or medical bills may still be able to qualify for a VA loan.

Find a cosigner

If you have bad credit, one of the best ways to get approved for a loan is to find a cosigner. A cosigner is somebody who agrees to take responsibility for the loan if you can’t make the payments. Cosigners can be family member, friend, or even a non-profit organization.

The cosigner will need to have good credit and be able to prove that they can make the payments on the loan if you can’t. The cosigner will also be responsible for the loan even if you make all of the payments on time.

Consider a lease-to-own agreement

One option for buying a house with bad credit is to enter into a lease-to-own agreement. In this type of agreement, you agree to lease the property for a set period of time, during which you will have the opportunity to improve your credit score. If your credit score improves enough, you may be able to qualify for a mortgage at the end of the lease period and purchase the house.

Save for a larger down payment

If you have bad credit, one of the best things you can do when buying a house is to save for a larger down payment. A larger down payment means less risk for the lender, and it can give you a lower interest rate and monthly payments. If you can’t come up with a 20 percent down payment, you may still be able to get a mortgage, but you’ll likely have to pay for private mortgage insurance (PMI).

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