It’s not impossible to get a house loan with bad credit , but it will be difficult. You’ll need to put down a larger down payment, find a cosigner, and be prepared to pay a higher interest rate.
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Check your credit report for errors
If your credit score is low, it’s important to find out if it might be due to errors on your credit report before you start trying to fix it. You can get a free copy of your credit report from each of the major credit reporting bureaus every year at AnnualCreditReport.com.
If you find errors, file a dispute with the credit bureau online or by mail. Include any documentation you have that supports your case, such as a cancelled check or letter from the creditor saying the debt has been paid. The credit bureau has 30 days to investigate and must correct any mistakes it finds.
If you have a lot of debt and/or late payments, cleaning up your credit report probably won’t be enough to give you the score you need to get a house loan. In that case, you’ll need to take some steps to improve your credit score before you apply for a loan.
Pay off any collections or charge-offs
One of the most important things you can do when trying to get a house loan with bad credit is to pay off any collections or charge-offs. This will show potential lenders that you are working on improving your credit score and are Serious about your financial responsibility.
Increase your credit score
There are a few things you can do to try to improve your credit score before you apply for a house loan. One way is to increase the credit limit on your existing credit cards. This will show creditors that you’re capable of handling more debt and improve your credit score. Another way is to make all of your payments on time. This includes any type of loan, not just house loans. Missing payments can hurt your credit score, so it’s important to make them on time, every time. Finally, you can try to get a copy of your free annual credit report from each of the three major credit bureaus, and dispute any errors you find. By correcting errors on your credit report, you can improve your credit score.
Find a cosigner
A cosigner is someone who agrees to take responsibility for your debt if you can’t or don’t. Having a cosigner with good credit can help you get approved for a loan and may get you a lower interest rate. But keep in mind that the cosigner is equally responsible for repaying the debt, so if you default on the loan, the cosigner’s credit will be affected.
1) Look for a friend or family member with good credit who is willing to cosign your loan.
2) Be honest with your cosigner about your financial situation and explain that you need their help to get a loan.
3) Ask your cosigner to sign a Cosigner Agreement, which is a legal document that states their responsibilities in regards to the loan.
4) Once you have found a cosigner, apply for a loan with bad credit and include the cosigner on the application.
Get a secured loan
If you have bad credit, one of the best ways to get a house loan is to get a secured loan. A secured loan is one where you put up some kind of collateral – such as a down payment on a house – in order to get the loan. This means that the lender has less risk, and therefore is more likely to give you a loan even if your credit is bad. Of course, if you default on the loan, the lender will keep your collateral.
Another type of loan that you may be able to get if you have bad credit is an FHA loan. The Federal Housing Administration (FHA) does not give loans directly to home buyers, but instead insures loans that are given by private lenders. This means that if you default on your loan, the FHA will pay the lender back. Because of this guarantee, lenders are more willing to give loans to home buyers with bad credit, as they know that they will get their money back even if the borrower defaults.