How to Buy a Home Today With Bad Credit
A crippling recession and housing crisis in the United States, starting around 2007, made it more difficult to buy a house with bad credit --- but not impossible. In 2010, with the housing crisis still not under control, the Federal Housing Administration was backing mortgage loans for borrowers with poor credit scores. The Washington Post reported that it was possible to qualify for an FHA mortgage with a credit score as low as 500. That's considered by the website Bankrate to be a bad credit score, with scores of at least 620 typically needed for mortgage loan approval.
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Instructions
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Get a copy of your credit report and score. Get your credit report from the Annual Credit Report. The site is operated by the nationwide credit bureaus and offers free credit reports as required under the terms of The Fair Credit Reporting Act. Follow instructions included with the report to order your score separately for a fee.
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Review your score. If your credit score is less than 500, postpone your home-buying plans and commit to a credit-repair program. People with bad credit usually have a better chance of approval through FHA because of its minimum 500 credit score requirement. FHA doesn't make loans directly. It insures loans made by lenders, meaning that the lender will be paid if you default on the mortgage, according to the U.S. Department of Housing and Urban Development.
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Make payments to bring all your credit accounts current, if necessary. Also check your credit report for delinquent accounts that must be addressed. Examples include old credit card bills that you never paid, or an outstanding judgment. It's highly unlikely that your mortgage application will be approved if you delinquent credit accounts showing on your credit report --- no matter what your credit score.
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Hire a real estate agent with experience assisting bad-credit borrowers. The agent should have a deep familiarity with FHA lending guidelines and should also know local lenders willing to lend to bad-credit borrowers --- through FHA or other programs.
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Shop for a mortgage by contacting several lenders. Fill out the necessary paperwork for preliminary approval. Then shop for a house to buy while following guidelines established by the prospective lenders regarding down payment and selling price. Sign a contract on a house and formally apply for a loan with one of the lenders.
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Tips & Warnings
A housing counselor approved by the U.S. Department of Housing and Urban Development can help you decide if now is really the best time for you to buy a house with bad credit. HUD-approved counselors are affiliated with nonprofit credit counseling agencies such as Consumer Credit Counseling, and can review your past credit problems and also offer advice on buying a home with bad credit. In 2010, FHA loans were available for as little as 10 percent down with a 500 credit score, according to The Washington Post. However, lenders not affiliated with FHA may request a down payment of at least 20 percent.
