Home Buying Programs for Bad Credit

Buying a home can be difficult when you have poor credit, but it is not impossible. While those with high credit scores have an easier time qualifying for loans, some programs still exist for people with low credit scores. Understanding how these programs work can help you qualify for a loan even with a questionable credit history.

Federal Programs

When you have a poor credit history, you may want to turn to government programs to help you qualify for a loan. For example, the Federal Housing Administration or FHA is a government program that backs mortgage loans. With this program, you can have questionable credit because the lender knows that your mortgage is guaranteed by the government. Another similar program is offered through the Veterans Administration. If you are in the military or are a veteran of the military, you can get a guaranteed loan with a lower credit score.

Subprime Lenders

Subprime lenders are a category of mortgage lenders who regularly work with people who have low credit scores. When you are not approved for a mortgage with a traditional lender, you may be referred to a subprime lender. This lender may be willing to work with you, but you will have to pay a premium on the interest rate of your loan. These loans have interest rates that are much higher than traditional mortgages to compensate for the additional risk that is being taken by the lender.

Getting a Cosigner

Another way that you could potentially qualify for a mortgage when you have bad credit is to get a cosigner. For example, you could get a parent or another family member to sign the loan with you. The lender will then evaluate the credit history of your cosigner as well as your own. If your cosigner has a good credit history, it can help you get qualified. This is very risky for the cosigner because they are making themselves responsible for the loan if you default.

Lease Option

The lease option is another way that you can possibly buy a house with bad credit. With this arrangement, you rent a house from a seller for a specific amount of time. Then at the end of the lease term, you have the option to buy the house. With this arrangement, part of your rent payment goes toward the down payment on the house. The lease term is usually a few years long, which gives you time to build up your credit score.

References

• Loan: Qualifying for an FHA Loan with Bad Credit
• The Mortgage Professor's Website: What is a Subprime Mortgage Lender?
• Lending Tree: What to Consider Before You Cosign a Mortgage Loan With a Significant Other
• Interest: VA Loans: The Best Mortgages Around; Stephanie Chen
• Real Estate ABC: Lease Options