Difference between revisions of "Buy a House with Bad Credit"

#Apply for a Federal Housing Admission (FHA) loan. FHA loans are insured by the Federal Housing Admission. They are a popular option for people will poor credit scores as the qualifications tend to be more relaxed.<ref name="rf1">http://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-1.aspx</ref>

#*Your credit score must be 580 or higher to qualify for a down of 3.5%. If your score is between 500 and 579, your down payment will be 10%.<ref name="rf2">http://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-2.aspx</ref>

#*If your credit score is below 500, you are probably ineligible. However, if you have non-traditional credit history or insufficient credit you may still qualify for a loan.<ref name="rf2" />

#*VA loans are generally provided by private lenders, but a portion of the loan is provided by the VA. This means the lender will offer you more favorable terms.<ref name="rf3">http://www.benefits.va.gov/homeloans/</ref>

#*To qualify, you need to provide evidence that you served in the military, such as a DD-214 reflecting nothing less than an honorable discharge. The amount of your loan, and your eligibility, depends on the length of your service and your service commitment.<ref name="rf3" />

#*VA loans do not have precise minimum credit score standards.<ref name="rf4">http://time.com/money/3086800/qualify-mortgage-bad-credit-low-credit-score/</ref>

#Look into the US Department of agriculture lending program. This program provides incentive for people to settle in less developed parts of the country, so if you live in a rural area it might be a good option for you.<ref name="rf4" />

#*The house you are purchasing must be in an eligible rival or suburban area (generally under 20,000 residents), as defined by the USDA. A listing of eligible areas if found on the USDA website.<ref name="rf5">http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do</ref>

#*While there is no precise credit score minimum, there are certain income requirements depending on the number of people in your household and where your home is located.<ref name="rf5" />

#*If you're not in a rural area and want a similar loan program, the US Department of Housing and Urban Development has a state-by-state list of programs on the website, and you can scan this list to find specific assistance programs in your area.<ref name="rf6">http://realtytimes.com/consumeradvice/buyersadvice1/item/27712-20140227-how-to-buy-a-house-even-with-no-savings-and-bad-credit</ref>

#*Loans can carry additional fees. Read all the paperwork carefully and, if you don't understand anything, consult a legal professional. FHA, for example, require an upfront mortgage insurance premium of 1.74% of the loan value, and also a higher annual premium based on a variety of factors. USDA loans have 2% premium and a variety of added fees.<ref name="rf4" />

#*Such loans are also better applied for if your bad credit is due to a one-time issue, such as job loss or medical bills. If you have perpetual problems with money and payment, it's easy to get in over your head. You might want to reconsider home ownership for a few years.<ref name="rf4" />

#*Credit scores are scored on a scale of 300-800. Anything over 720 is considered good credit. Scores between 700 and 620 are considered mediocre. Anything below 620 would make you a lending risk.<ref name="rf7">http://blog.credit.com/2013/07/how-to-get-a-mortgage-with-bad-credit-67820/</ref>

#*You may check your credit score for free and get notifications about changes on your credit by consulting free websites, such as Credit Karma.<ref name="rf8">https://www.creditkarma.com/</ref>

#*You may also order a copy of your credit report from EquiFax, TransUnion, and Experian. This will give you a variety of documents to look over and help you catch any errors that need reporting.<ref name="rf9">http://www.forbes.com/sites/trulia/2014/05/16/the-reality-of-bad-credit-when-buying-a-home/</ref>

#*Seeing your credit score will allow you to manage any debts, and make a budget to get all your payments up to date.<ref name="rf9" />

#*Late payments on student loans reflects poorly on your application for conventional loans, as well as FHA loans. If you've been late on a loan payment within the past 12 months, be prepared to explain the situation.<ref name="rf7" />

#*A history of delinquent payments is easier to get around than many bad credit hurdles, but it can affect the amount of your down payment and debt-to-income percentage.<ref name="rf7" />

#*Any foreclosures can seriously affect your credit score. You must wait 36 months from the date of the foreclosure to be eligible for an FHA loan, and the down payment will be 3.5%. Conventional loans, however, require 7 years to have passed.<ref name="rf7" />

#*Bankruptcy means you must wait 24 months to apply for a FHA loan with a 3.5% down payment. For conventional loans, you must wait 48 months.<ref name="rf7" />

#*Look at all of your credit card debts, and student loans. Try to make a dent in these payments, even if it means sacrificing in other areas of your budget. The more debt you can eliminate before applying for a loan, the better.<ref name="rf10">http://blog.readyforzero.com/can-you-buy-a-home-with-bad-credit/</ref>

#*Many tools are available online, such as the ReadyForZero tool, that can help you manage your debt and bring overall debt levels down.<ref name="rf10" />

#*Get as much supporting documentation as you need, such as medical reports, pay stubs, letters from bosses, and bank statements. This can explain delinquent payments or accruing a heavy amount of debt.<ref name="rf7" />

#*When speaking to a lender, give them the full story. Ask upfront about any concerns they may have regarding your history, and be prepared to give specifics as to what lead to your current credit score.<ref name="rf7" />

#*The main downside to renting to own is that, in the long run, the process is more expensive. Another con is that, oftentimes, contract specifics are fuzzy and added interest rates, fees, and payments mean many would-be owners get fed up and give up on owning the home. Work with owners and realtors your trust if you go this route.<ref name="rf11">http://www.realtor.com/news/ask-a-realtor/is-rent-to-own-an-option-if-our-credit-is-bad/</ref>

#Consider owner financing. Owner financing is the financing of a property purchase directly through the person or entity selling it. It is a possible alternative if you cannot obtain funding through a conventional mortgage lender and the house owner is open to financing it for you (likely if if he or she is having difficulty selling the property).<ref name="rf12">http://www.investopedia.com/terms/o/owner-financing.asp</ref>

#*In order to protect his or her own interests, the seller may require a higher down payment than a mortgage lender would (20% higher is not uncommon).<ref name="rf12" />

#*Subprime loans have higher interest and fees than conventional loans, so plan accordingly. You are often not allowed to pay off the loan early, and interests rates sometime spike towards the end of a mortgage. People often end up in a situation where they suddenly cannot pay off their loan due to increased interest and fees, leading to foreclosures.<ref name="rf13">http://www.investopedia.com/articles/basics/07/subprime_basics.asp</ref>

#*Subprime homes, however, do allow people to buy homes who would otherwise not qualify for home ownership. If your bad credit is a result of extenuating circumstances - such an unexpected layoff or a medial emergency - and you are now in a financial situation that is sustainable long term and you know you will have the assets to pay the loan in the future, this route might work for you. However, never sign any paperwork you do not understand. You should always have a third party look over contracts, but this is extra important when signing off on a subprime loan.<ref name="rf13" />

#*Be honest with yourself. How much home repair are you able to do on your own? If you're particularly handy, and can undertake many repairs yourself, a fixer upper can be a bargain. But if you have to factor in costs of labor, which can get expensive fast, this might end up far more expensive up front than buying a pricier home.<ref name="rf14">http://www.getrichslowly.org/blog/2012/10/04/should-you-buy-a-fixer-upper/</ref>

#*Look for fixer uppers in good neighborhoods, as you can get them up to market value with time and work. A house in a bad neighborhood will always be priced lower unless the neighborhood improves.<ref name="rf14" />