How to Buy a House with Bad Credit | Guide | Buying a House with Bad Credit

Wondering How to Buy a House with Bad Credit? We Will Show You How

Buying a home is never hassle-free. But buying a house with bad credit can feel even more frustrating. Add in buying a house with bad credit and no money down, and people may wonder if a home of their own is even possible.

This year’s guide to buying houses with bad credit will help you understand how to buy a house with bad credit.

We will go over topics on buying a house with bad credit like:

Understanding what bad credit really is
Knowing what credit score is needed to buy a house
5 ways buying a house with bad credit becomes possible
Info explaining if buying a house with no down payment is possible

By the end of this guide, you will have a great understanding of how to buy a house with bad credit and whether or not buying a house with bad credit and no money down is an option.

And when you know buying houses with bad credit is possible, you can have the hope of being a homeowner sooner than you thought.

Why Buy?

If you have bad credit, you may be wondering if buying a house is a good idea. Or perhaps your friends and family are encouraging you to wait.

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Of course, there are times when renting for an extra year may be wise, but there are some big perks of buying a home – even buying a home with bad credit:

Tax break for buying a house
Equity
Stable housing cost
Peace/pride in your home

For reasons like these, let’s get into how to buy a house with bad credit with a short discussion on bad vs. good credit.

What Counts as Bad Credit?

Let’s take a look at credit score ranges before we start talking about how to buy a house with bad credit. We should know what good credit is and what bad credit is first.

First off, your credit score is a three-digit number that reflects your creditworthiness. Here are the credit score ranges:

750 and above: Excellent credit
700 – 749 = Good credit
650 – 699 = Fair credit
550 – 649 = Poor credit
550 and below = Bad credit

But when it comes to buying a house with bad credit, what credit score is needed to buy a house? Let’s take a closer look…

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What Credit Score Is Needed to Buy a House?

Let’s answer your question: “What credit score is needed to buy a house?”

Realtor.com suggests that any credit score under 650 is deemed poor for buying a house.

While they say buying a house with bad credit is possible, 650 is the point where it can really become more difficult.

If you look back up to the credit score ranges, that means those with “bad” credit and “poor” credit will really need to pay attention to our advice on how to buy a house with bad credit.

But the real answer to “What credit score is needed to buy a house?” is that it depends. As you will see, you have options even when you have bad credit.

How to Buy a House with Bad Credit

If your credit score falls into the “bad” or “poor” categories, you need to learn how to buy a house with bad credit.

Fortunately, there are a few steps to make buying a house with bad credit still possible.

If buying a house with bad credit is your goal, we will encourage you to:

Double check your credit report for errors
Offer up a larger down payment
Look into getting an FHA loan

We know that some people need to buy a house with bad credit and no money down, so we have some options for those of you who find yourself in this position.

Don’t Miss: Guide: What Credit Score Is Needed to Buy a House? Average, Good, and Minimum Scores

1. Check Your Credit Report

Here’s the first tip when you want to know how to buy a house with bad credit. The first thing you need to do before you start buying a house with bad credit is to really examine your credit report.

It is absolutely possible that a mistake or two on your credit report is bringing your credit down from acceptable credit to bad credit. When you check your credit report before buying houses with bad credit, do this:

Go line by line down your credit report
If you find a mistake, report it to the credit agency
Then wait for the revised credit score

As you will see, there are significantly fewer options for buying houses with bad credit. So if an error is giving you bad credit, do not go through the hassle for something that can easily be fixed.

2. Offer a Larger Down Payment

The next thing to understand when you want to know how to buy a house with bad credit is that you do still have some financial control.

You may not be able to raise your credit score overnight. But buying a house with bad credit becomes considerably easier with one factor:

A big down payment.

The reason buying houses with bad credit is so difficult is because the lender does not know if you will pay back all the money they loan you. If your mortgage is $120,000, that lender will be giving somebody with a bad record of paying their debts $120,000.

Before you worry about spending all that money on a down payment, remember you get a tax break for buying a house, which will save you money, too.

When you can put down a serious down payment if you are buying houses with bad credit:

You show the lender you have been acting responsibly enough to save money
You also decrease the amount of money you need to borrow from them

We know that some people do not have this money ready and need to buy a house with bad credit and no money down. If you are buying a house with bad credit and no money down, check out tip #4 and tip #5.

3. Get An FHA Loan

The next top tip for buying a house with bad credit is to get an FHA loan. FHA stands for the Federal Housing Administration, which means these are loans for buying houses with bad credit that are government sponsored.

These are considered to be flexible loans, which makes them an ideal option for those needing to know how to buy a house with bad credit.

To get an FHA loan with a 3.5% down payment, you will need to have at least a credit score of 580
To get an FHA loan with a credit score lower than a 580, you will need to get a 10% down payment

To make up for your bad credit score, you will need to get mortgage insurance if you are buying houses with bad credit. This protects them in case you do not pay back the mortgage amount.

If you are looking at buying a house with no down payment, an FHA loan will not work for you. That being said, there are many surprising situations that still allow you to qualify for the FHA loans for buying a house with bad credit:

Bankruptcy
Foreclosure
Collections

To learn how to buy a house with bad credit through an FHA loan, check out the FHA website for their requirements.

4. Check Out the HOPE Program

This next way that helps those wanting to know how to buy a house with bad credit also helps those who are buying a house with bad credit and no money down.

The Operation HOPE Home Buyers Program is for “low-wealth individuals who ordinarily would find homeownership difficult, if not impossible.”

This organization helps make buying a house with bad credit possible by:

Connecting individuals with loans from FDIC-insured institutions
Showcasing top FHA loan programs
Offering down payment assistance programs
Partnering you with teams of professional retailers who are knowledgeable and helpful to your unique situation
Helping you find all the first-time homebuyers programs designed for low or moderate income individuals

Before you can start buying a house with no down payment or buying a house with bad credit through HOPE, you will have to enter their HUD-approved housing counseling programs.

This program teaches you what you need to know before you buy a house with bad credit and no money down.

HOPE has locations in the following states:

Alabama
California
Colorado
Florida
Georgia
Illinois
Maryland
Michigan
Mississippi
Missouri
Nebraska
Nevada
New York
Ohio
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Washington, D.C.

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5. Look for Down Payment Assistance

Now let’s focus on those who are buying a house with bad credit and no money down. While buying a house with bad credit is definitely possible, you normally need to offset that problem with a down payment.

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On the flip side, there are a handful of mortgage loans that do not require a down payment, but these lenders require at least a “fair” credit score:

VA loans
Navy Federal loans
USDA loans

So what is a person to do when they need to buy a house with bad credit and no money down?

One of the best ideas for buying a house with bad credit and no money down is to look at down payment assistance programs:

NHF: The National Homebuyers Fund has down payment assistance programs that offer a non-repayable grant.
Down Payment Resource: This organization has a useful tool that allows you to see if you qualify for any assistance programs in your area if you are hoping to buy a house with bad credit and no money down.

Buying a house with no down payment and a bad credit score is difficult. You may want to consider renting for a year to save up down payment money (and your credit score can go up), or asking a trusted friend or family member to loan you the down payment.

Conclusion – How to Buy a House with Bad Credit

Now you have a better idea of how to buy a house with bad credit and what credit score is needed to buy a house (it’s lower than you probably thought).

You should feel hopeful that there are options available to you, even if you are buying a house with bad credit and no money down.

If you want to enjoy the many benefits of homeownership (including a tax break for buying a house), look into the five steps of buying a house with bad credit and then consider the options for buying a house with no down payment.

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