How to Get a Home Loan With a Bad Credit Score

You can buy a home with bad credit.

It can be difficult but it is not impossible to get a home loan with a bad credit score. A bad credit score for a mortgage loan is any number below 620. This can lead to no loan or a higher interest rate and require more income documentation when preparing your loan paperwork. In these types of situations you may need to be patient as you look into creative financing options and other markets.

Things You'll Need

• $3,000.00 downpayment
• Patience

Instructions

1. Repair your credit by paying bills on time for the next six months. Get copies of your credit report (see Resources) and look for inaccuracies you may be able to fix, such as a bill that says it hasn't been paid but has been paid in full, and submit a copy of the document showing payment in full to the credit bureaus.

2. Inform your mortgage broker in advance of your bad credit score. Work with your broker to find a loan that accepts your lower credit score and determine the price range for your home. Find a home within the price range the broker indicates and make an offer. Complete the paperwork for a home loan.

3. Pay a 20 percent down payment on the home, as this amount covers a large portion of the home equity and the bank is more inclined to finance even with bad credit. Provide documentation that the down payment is from verifiable sources, such as an IRA, 401k or savings account. Accept the higher interest rate knowing you can adjust it after two years of solid payment history.

4. Make an offer on a home with an FHA-assumable loan, which does accept less than perfect credit. Discuss the terms with your mortgage broker and real estate agent before making the offer. Submit your paperwork for the loan.

5. Buy a home from a family member or friend. Negotiate the terms and have an attorney draw up the contract. Include terms for all situations that can occur within the loan agreement, such as your inability to continue payment of the loan, damage to the home and loss due to fire, flood, hurricanes and other natural disasters.

Tips & Warnings

• If you do not have 20 percent for a down payment, offer the most you can.

References

• LendingTree: How Bad Credit Affects You
• Superpages: Finding a Bad Credit Home Loan
• The Washington Post; Assumability: A Hidden Potential Value to FHA Loans; Jack Guttentag; February 2010

Resources

• Annual Credit Report: Request your free annual credit report