What Kind of Credit Do You Need to Buy a Foreclosed Home?


Foreclosed homes often come at substantial discounts. If you are fortunate enough to find a discounted home in a neighborhood with rising property values, it is important to act quickly as other real estate investors are constantly on the prowl for good property deals. However, before you begin making purchase offers on a foreclosure, you must have a preapproval notice from a lender. The type of financing you receive on a foreclosed home is based on your credit score.

Excellent Credit

A borrower with excellent credit and sufficient income is ideal for a mortgage lender. According to MSN Money, borrowers with credit scores of 740 and above get the best mortgage rates. If you have excellent credit, you can apply for a conventional loan to purchase a foreclosed home. According to Bankrate.com, a score of 760 or better is considered "excellent." Conventional mortgage lenders include banks, credit unions and large financial institutions. Since a variety of options exist, compare your options before making a commitment to a loan.

Good Credit

Consult with a mortgage broker to discover your mortgage loan options if you have good credit. Good credit scores range between the high 600s and 760. Good credit doesn’t mean that you automatically qualify for the most competitive interest rates and loan programs. Avoid the urge to take advantage of the first loan programs you qualify for as unadvertised loan programs may be available to match your specific financial circumstances. Lenders may also be willing to drop your interest rate significantly for raising your score above a certain threshold. A mortgage professional can help you navigate this process and create the best possible financial scenario for your loan.

Poor Credit

Poor credit generally includes scores of 620 and below. It does not mean you are unable to qualify for a loan. However, qualifying may require extensive research and a hefty down payment. For example, real estate investors with poor credit often use hard money to purchase a home. A hard money lender charges substantial points and a high interest rate. Mortgage points are fees charged to process your loan. If you are looking to occupy your home as a primary residence, consider using Home Path or Home Steps financing. These programs are available for buyers looking to purchase a Freddie Mac or Fannie Mae foreclosure. Home purchases come with a limited 2-year warranty.


Qualifying for a mortgage loan to purchase a foreclosure doesn’t require perfect credit. Whether you have excellent credit or poor credit, you can negotiate with lenders to obtain the best possible interest rate and terms on your mortgage loan. Always get preapproved before making an offer on a foreclosure as many lenders require proof of funds before they review your offer. If you plan to purchase a foreclosure using cash, your credit score is not a consideration.

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