The Secret to Buying a House with Bad Credit

Depending on your circumstances, you may have lending options that make it possible to overcome that bad credit barrier when buying a home. This guide will teach you how to buy a house with bad credit, and where to go to find financing that will work for you.

Lender Credit Score Requirements Every lender has a set minimum credit score they require to approve homebuyers for a mortgage. Some lenders will accept lower credit scores while others have stricter requirements.

First-time Homebuyers Several federal programs help first-time homebuyers that have bad credit. Some banks also offer first-time homebuyer programs. And remember, that you don’t need to be a first-time buyer to use these programs. Many first-time homebuyer programs apply to anyone that has not owned a home in at least three years.

1. Find a housing counselor in your local area.

The Consumer Financial Protection Bureau (CFPB) offers a helpful tool that lets you search for housing counseling agencies by zip code.

2. Call for a home buyer consultation.

 Let the counselor know you are a first-time homebuyer that has bad credit. They’ll review your finances with you and may ask to check your credit. Don’t worry, this is a soft credit pull so it won’t affect your score.

3. Learn about the options available to you.

 The counselor will explain programs that you can qualify for where you want to buy. These programs will have low minimum credit score requirements. They may also offer low or no down payment amounts. There may also be programs to provide down payment and closing cost assistance.

4. Take a first-time homebuyer course.

 Many first-time homebuyer programs require you to provide a certificate of completion for a HUD-approved first-time homebuyer course. You take the 8-hour course, which may be in person or online, and receive a certificate of completion. This certificate is good for up to one year.

5. Create an action plan with your counselor.

 Your housing counselor will help you create an action plan so you can get ready to buy a home. Together, you’ll set a budget and map out the steps you need to take to become mortgage-ready.

Should you buy a house with bad credit?

The interest rate on a mortgage for someone with bad credit will be much higher than the interest rate for someone with good credit. The monthly payments will be higher and so will the total cost of financing your home.

One final tip is that during the homebuying process and up to closing, you want to make sure you’re prepared for the costs of being a homeowner. This is something most people underestimate. You’re used to having a landlord or property manager that fixes things when they break. That’s all on you as a homeowner. You’ll have to find repair techs you can trust and make sure things get fixed to your satisfaction.