Finance, Mortgage 101

Can I Buy a House With Bad Credit?

Buying a home is an important process for many people. While many agents and institutions stress the importance of being financially prepared to buy a home, some people are already in a challenging financial situation. Ultimately, especially with the state of today’s economy, many are wondering, “Can you buy a house with bad credit but good income?” 

Buying a home is an important process for many people. While many agents and institutions stress the importance of being financially prepared to buy a home, some people are already in a challenging financial situation. Ultimately, especially with the state of today’s economy, many are wondering, “Can you buy a house with bad credit but good income?” 

The answer to this is an emphatic, “yes!” While there may be some extra work on your part, including research into different opportunities available, there are ways to purchase a house even if you have bad credit. Here are some options that can help make home buying part of your future. 

FHA loan requirements

When looking to take out a loan to purchase a house, it’s important to remember that there are some FHA loan requirements. However, keep in mind that these rules are often in flux, as new laws attempting to modernize the home-buying process can change FHA requirements. At this moment, borrowers with credit scores of 580 or greater are eligible for the maximum amount of financing. Those with scores between 500-579 are limited to a maximum loan-to-value ratio of 90%, while those with scores lower than 500 are not eligible for FHA-insured financing. 

Government-based programs

If your credit scores are lower than 500, there are still programs for buying a home with bad credit. Those who qualify for Section 223(e), Section 238, Section 247, Section 248, Home Equity Conversion Mortgages (HECM) Title I and HOPE for Homeowners are not tied to these minimum credit score requirements. For specifics, check with an expert to see which options you may qualify for. 

First-time buyer options

In addition to this, there are home loans for first-time buyers with bad credit. These often come in the form of grants, loans and credits. While there are stipulations for each, there are a number of different programs to review. There are also programs for those in qualifying professions, such as veterans, law enforcement officers, firefighters, emergency medical technicians and teachers. Also, it’s important to check with your individual state to see what options are available. Some states offer qualifying assistance that is not available nationwide.

Bring the cash

If you have bad credit but a good amount in your savings, you can use this to your advantage. You may not be able to get the full amount of the loan you’re seeking, but you can make up for it with a cash offer. Especially in today’s market, cash is a very enticing offer to sellers.

Alternative mortgage lenders

If you don’t qualify for an FHA loan or other assistance program, there are some bad credit mortgage lenders. Generally, if you take this route, you would be pursuing a non-qualified mortgage (non-QM) loan. While most lenders are bound to the rates set by the government, non-QM loans are often more flexible, which allows those with bad credit to take advantage. To do so, look at the specialty mortgage programs offered by some banks. Keep in mind, however, that these loans are neither conventional nor are they government-backed. 

If you have the time and opportunity to build your credit, more doors will be opened to you when it comes to home-buying. Even still, if your credit isn’t where you want it to be, you can still find and purchase your dream home.

For more information on how to finance your home, check out our how-to finance, and how-to buy guides on Homes.com.

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