How to Buy a House with Bad Credit

If your credit score is in the low range, you might think it’s impossible for you to buy a house. But the truth is, bad credit is no reason to give up on your dreams of homeownership. Many Americans have bought homes despite having poor credit, and if you play your cards right, you can do it, too.

If you’re looking to buy a house with bad credit, time is of the essence. Preparing for the buying process can take a long time, and the sooner you begin, the sooner you can become a new homeowner. Follow the steps below and you may be able to purchase a home sooner than you thought was possible.

Make sure your credit report is accurate.

Credit reporting agencies are far from perfect, and there’s always a chance that your credit report won’t be entirely accurate. In fact, more than one-third of credit reports contain at least one error. False information can lower your credit score by 100 points or more, so addressing any mistakes is essential before you start house hunting.

Examine your credit report to check that everything is correct. If you notice something wrong, you’ll need to contact the credit bureau and the business that reported the false information.

It typically takes about 60 days for your credit score to reflect any corrections, so the earlier you check over your credit report, the better.

Try to improve your credit score before you buy.

Bad credit doesn’t have to stay bad. Practicing good financial habits can lead to a noticeable improvement. Here are some steps you can take to boost your credit score as you prepare to buy a home:

1. Make all of your monthly payments on time.

If you meet the deadlines for all of your monthly payments, your credit score will slowly but surely increase. Setting up automatic payments for each month makes this a lot easier.

2. Pay down debt.

One of the most significant factors in determining your credit score is your credit utilization rate. Your credit utilization rate is a ratio of how much you owe on your credit cards compared to the maximum limits on those cards. The bigger the difference between these numbers, the better, so paying off as much of your debt as possible to keep your balance low is one of the best things you can do.

3. Increase your credit card limits, but not your spending.

Another way to improve your credit utilization rate is to increase the limits on your credit cards while still spending the same amount. You can request a limit increase by calling the phone number on the back of a credit card.

4. Keep all of your accounts open, but don’t open any new ones.

Getting rid of credit cards to decrease your spending might seem like a smart idea, but it can actually lower your credit score. Opening new accounts can also damage your credit, so you want to keep the same number of credit cards until you close on your home.

5. Add positive information to your credit report.

You most likely have some monthly payments that aren’t currently factored into your credit score. If you’ve been good about paying your phone, internet, and utility bills on time, your credit score should reflect that. By using the free Experian Boost program, you can connect these accounts and others to your credit report for an easy score increase.

6. Become an authorized user.

If you have a friend or family member with good credit, you can have them vouch for you by making you an authorized user on their account. Being an authorized user means the account holder’s payment history will count towards your credit score. Of course, this option requires a high level of trust between both parties, and it will only benefit you if the account holder continues to maintain good credit.

Explore your borrowing options.

Different types of home loans have different credit requirements, and just because you don’t qualify for one doesn’t mean you won’t qualify for another. Here are the minimum credit scores required for the most common mortgage types:

  • Conventional loan: 620
  • FHA loan: 500 for a 10% down payment, 580 for a 3.5% down payment
  • USDA loan: Varies depending on the lender, typically 640
  • VA loan: Varies depending on the lender, typically 620

Be aware that just because you qualify for a mortgage doesn’t mean it will actually be affordable. The lower your credit score is, the higher your monthly payments and interest rate will be, so it’s best if your score is higher than the minimum amount required for your loan.

Focus on the big picture.

No matter how poor your credit score may be, it’s important to remember that credit is only one of several factors that affect your ability to buy a house. Lenders and sellers will also be concerned with your income, the total debt you owe, whether you currently have any debts in collections, and whether you can afford your down payment. If you’re doing well in all of these areas, your bad credit may not be viewed as a huge problem.

BuyEZHouse could be your best homebuying solution.

While home buying with bad credit can be difficult, it’s not impossible, just as long as you put in the effort to be financially responsible. If you have bad credit, our BuyHouseEZ alternative home financing program may be your perfect fit for buying a home. We are a direct lender and have helped many people who had poor credit, or even no credit history, successfully reach their homeownership goals. 

If you’re ready to own a house, regardless of what your credit score may be, contact us today to get started!

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