How to Buy a House with Bad Credit

Numbers can dictate the path of our lives whether they are real or superficial. The same way we need high GPA’s in high school to get into college, we need high credit scores to get a loan. It’s no secret life happens and people make mistakes with damaging effects to that score.

In today’s market, bad credit isn’t only a three digit number. It can be timing too, like overdue late charges, or a somewhat recent short sale or foreclosure. Here are a few ways to get around this life-report card in order to get a loan.

Save a large down payment

Buyers with a credit score of 580 or below will need a large down payment. IF you’ve got a score that’s a bit higher, you can use that large down payment to compensate for your score, meaning you will need a minimum of 20% down.

With a large down payment, you are telling the lender you have sizeable cash, despite what your credit history says. Your loan-to-value ratio is lowered, and you instantly have more equity than you would have with a lesser down payment. They want to see buyers with large down payments because the more they have invested in the home, the less likely they are to default, at least in theory. All this makes you less of a risk.

Get an FHA loan

Federal Housing loans are popular among borrowers with low credit scores. Backed by the government, these loans are more lenient than the Fannie Mae and Freddie Mac, which happen to offer financial products and services to lower income buyers.

Scores of 580 and below can be approved as long as they put down 3.5%. For conventional loans, they need scores of 620 or 640. The only downside to FHA loans is they have much higher fees.

Know how to standout to a lender

While most loaning systems run you through a computer program to determine your candidacy, it doesn’t always mean a slip-up here and there will deter you. It is possible for lenders to go the manual underwriting route, meaning they will overlook the credit score if you can prove your financial stability in other ways. If you can show on time rent payments a minimum of a year, and a comfy cash cushion of at least 6 months, they could overlook a bad score. High income and low debt payments make you stand out as well. Be ready to explain why you have a low credit score.

Try finding a private mortgage

Big banks are the first place most people think of when getting a loan, but there are other means. Private mortgages can come from a relative or a friend. Basically anyone with a large amount of cash they would be willing to lend you. You will pay for the home with that cash, and as long as you stay within the agreement boundaries set by both parties. While having downsides like this to being in debt to a family member. Going this route makes a bad credit score a nonfactor.

Bad credit doesn’t mean homeownership is out of the realm of possibility; you just have to do some work to get what you want. The first thing you will want to do is work on your credit score, stash some money away, and get ready to own a home. You can get there with the will!

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