Buying a home with a bad credit score is not ideal, but that doesn’t mean it can’t be done. Although, you should definitly do your homework for diving into a mortgage head first, especially if your credit score is anything but great, is it even possible to get a mortgage with a bad credit score.
Normally, a good score means you get the best interest rates available and a bad score means you won’t. In fact, sometimes you will be denied a mortgage altogether if your score is that bad. However, if your score is bad there are options out there for you. So can you get a mortgage with bad credit? Yes, it can be done.
What’s Considered a Bad Score?
Most people have some idea as to what a “good” and “bad” credit score is, but your score may not be as bad as you think. Checking your score before meeting with a mortgage lender can give you a good sense of where you are financially. Then your lender can help you determine which route is best for you to get you into a home.
Your credit score is based off your credit report that is generated by three credit bureaus (TransUnion, Equifax, and Experian). Every year you can get a free credit report from each bureau to look over and ensure there are no errors bringing your score down.
Credit scores, also called FICO scores, can range from 300 – 850, 300 being the worst score you can have to 850 being absolute perfection. If your score is above 750 you’re considered to be in the “top tier,” which means you qualify for the best mortgage rate on the market. However, if you don’t have “good” score in the 700’s that doesn’t mean all hope is lost.
Tons of mortgage companies work with future homeowners who have credit scores as low as 550. But, again, it’s not an ideal situation, So how do you make your score better?
Check For Errors
One of the easiest ways to improve your score is to go through your credit report and check for any errors. Creditors are not perfect and frequently make mistakes. In fact, 1 in 4 people find some sort of reporting an error on their credit. If you find an error on your report be sure to contact the organizations the provided the erroneous info and have them update it. It could take 30 days to get the error off your report but it will benefit your credit score at the end of the day.
As for mistakes that are your fault, if it was a one-time offence you may be able to call and get it removed. However, for the major problems like credit card debt, the only real solution is time. Set yourself on the right path by making your credit card payments on time, and gradually you will see your score rise over time.
Special Home Loans
An FHA or Federal Housing Administration Loan is perfect for homebuyers with poor credit. They require a minimum of a 580 and they allow you to make a 3.5% down payment.
One drawback to an FHA loan is since these are insured by the federal government home buyers that do not pay a 20% down payment will have to pay private mortgage insurance. Currently, this is 1.75% of the FHA loan amount. However, depending on your actual credit score you may qualify for certain conventional loans but be sure to talk to your lender and do your homework.
A Bigger Down Payment
If your credit is anything but stellar but your savings account is, you may be in luck. Some lenders are more than willing to work with homebuyers who are willing to make a bigger down payment. Why? Well, the more money you put down on a house the less you have to finance, meaning you’re less of a risk to your lender.
