How to Find a Housing Loan With Poor Credit History

A poor credit history doesn't automatically disqualify you for a home mortgage and getting a loan may be easier than you think. Lenders see your credit at any given moment as a "snapshot in time," according to "The Washington Post." Your credit may have been poor two years ago, but may have improved just enough to allow you to qualify for a mortgage -- even with a credit score that is still considered to be poor. The "Post" reports that people with credit scores as low as 500 can qualify for loans insured by the Federal Housing Administration.

Instructions

1. Get a copy of your credit report and score from Annual Credit Report. Order your credit score separately, for a fee, by following instructions included on the report. The Federal Trade Commission reports that Annual Credit Report is the only website authorized by the government to provide free reports under the guidelines of the Fair Credit Reporting Act. You're entitled to three free reports every 12 months -- one each from major credit bureaus TransUnion, Equifax and Experian.

2. Arrange an appointment with a housing counselor approved by the U.S. Department of Housing and Urban Development. Find a counselor in your area by visiting the HUD website. Make the appointment by calling the counseling agency.

3. Review your credit report and score with the counselor as you discuss your desire to buy a house even though you have a poor credit history. Ask the counselor to point out information on your credit report that might be viewed negatively by a loan officer, such as current obligations that are past due, old debts still being pursued by debt collection agencies and excessive balances on credit cards and other revolving accounts.

4. Address issues pointed out by the counselor. Pay off debt collectors, pay down balances and bring all accounts current by making payments, if applicable. Order your credit report and score again after about 60 days -- allowing for your credit score and credit report to reflect updates.

5. Confirm that your credit score is at least 500 or preferably higher. Delay your home-buying plans and work on improving your credit if your score is below 500. For most non-FHA loans a credit score of at least 620 is needed for approval, with scores of 720 and higher offering the best interest rates, according to Privacy Rights Clearinghouse, a nonprofit consumer information company.

6. Ask the HUD counselor for a list of local lenders offering loans insured by FHA. Apply for "pre-approval" on a home loan by contacting a lender and submitting an application. Filling out the application completely and offer any requested supporting documentation such as pay stubs and tax returns. "The Washington Post" reports you should be prepared to make at least a 10 percent down payment on an FHA loan if your credit score is below 580, and at least 3.5 percent if your score is 580 or higher. A larger down payment could improve your chances for approval. Try another lender if you're turned down. See your HUD counselor to work on a new strategy for improving your credit if multiple lenders turn you down, and then apply again after your credit score improves.

References

• "The Washington Post": FHA's Balancing Act
• "Journal Star": Confusion Over Fannie Mae's Guidance On Credit Guidelines
• Federal Trade Commission: Your Access To Free Credit Reports
• HUD: Approved Housing Counselors
• Privacy Rights Clearinghouse: Your Credit Score

Resources

• Annual Credit Report.com: Request A Report