How to Buy a House with Poor Credit
It’s not impossible to buy a house with poor credit, but it will be more difficult than if you had good credit. You’ll likely need to put down a larger down payment and pay a higher interest rate. But with careful planning, you can make it happen.
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Assess your credit score
Many people believe that they cannot buy a house if they have poor credit. However, there are steps you can take to improve your chances of getting approved for a mortgage. The first step is to assess your credit score. If your score is below 600, it will be difficult to get approved for a loan. However, if your score is above 620, you may be able to get approved for a conventional loan with a down payment as low as 3%.
If your credit score is below 580, you may still be able to get an FHA loan with a down payment of 10%. Even if you have poor credit, there are options available to help you purchase a home.
Once you know what type of loan you may be eligible for, start shopping around for lenders. Be sure to compare rates and fees before choosing a lender. It’s also important to shop around for the best mortgage rate. You can use websites like Bankrate.com to compare mortgage rates from different lenders.
If you have poor credit but are determined to buy a house, there are steps you can take to improve your chances of getting approved for a loan. Assessing your credit score and Shopping around for the best mortgage rate are two key steps in the process.
Get pre-approved for a mortgage
You can get pre-approved for a mortgage through a bank, credit union, or online lender. The process generally involves filling out an application and providing the lender with financial information such as your income, debts, and assets. Once you’re pre-approved, you’ll know how much house you can afford and the interest rate you’ll pay on your loan.
Look for a fixer-upper
If your credit is poor, you might not be able to get approved for a conventional mortgage, but that doesn’t mean you’re out of luck when it comes to homeownership. There are several things you can do to improve your chances of qualifying for a loan.
One option is to look for a fixer-upper. By definition, a fixer-upper is a home that needs some work. The advantage of buying this type of property is that you can usually get it for a lower price than a home that doesn’t need any repairs. And, if you’re handy, you might be able to do some of the work yourself and save even more money.
Another option is to get an FHA loan. This type of loan is insured by the federal government and has more flexible credit requirements than conventional loans. If you can qualify for an FHA loan, it might be possible to get approved even if your credit score is as low as 580.
If you’re hoping to buy a house with poor credit, there are options available to you. Talk to a mortgage broker to learn more about your choices and find out which one might be right for you.
Consider an FHA loan
An FHA loan is a mortgage that’s insured by the Federal Housing Administration that allows for a lower down payment, usually around 3.5%. These loans are available to all qualifying buyers, not just first-time homebuyers.
Save for a larger down payment
If you have poor credit, one of the best things you can do when buying a house is to save for a larger down payment. By putting more money down, you’ll increase your chances of getting approved for a loan and avoid having to pay private mortgage insurance (PMI).
A larger down payment will also help you get the best possible mortgage rate. So if you can afford it, aim to put down 20% of the purchase price upfront. This way, you’ll avoid paying PMI and lower your monthly payments.
Of course, saving up for a larger down payment can take time. If you don’t have the patience to wait, there are other options available. For example, some lenders offer programs for buyers with poor credit that require as little as 3% down. Just keep in mind that you may end up paying a higher interest rate with these loans.
Get a co-signer
If you’re struggling to get approved for a loan on your own, you might be able to get approved by finding a co-signer. A co-signer is somebody who will sign the loan with you and become equally responsible for making the payments.
The benefit of having a co-signer is that their good credit will help offset your bad credit, and make you more likely to get approved for a loan. But the downside is that if you default on the loan, not only will your credit score take a hit, but so will your co-signer’s.
That’s why it’s important to only get a co-signer if you’re confident that you can make the monthly payments on the loan. If there’s even a chance that you might miss a payment, it’s not worth putting your co-signer’s credit at risk.