Credit is important when buying a home and having good credit greatly improves your chances of obtaining a loan. While bad credit doesn’t mean homeownership is out of reach, it’s important to understand where your credit health lies and what your home buying options are. What does bad credit look like? Here’s a useful breakdown:

720+ Excellent Credit: Should easily qualify for a variety of mortgages, obtain good interest rates and low fees.

680 – 719 Good Credit: Most likely able to qualify, with a decent interest rate and standard fees.

620 – 679 Fair Credit: A chance to qualify, with fewer options, higher interest rates and fees.

580 – 619 Poor Credit: Difficult to qualify, with much fewer options, higher interest rates and fees.

350 – 579 Bad Credit: Unlikely to qualify for a mortgage, with some exceptions.

If your credit is below 680 or lower, don’t despair, there are still options out there for you to buy a home. Keep in mind however, the lower your credit, the higher your interest rates are likely to be. Here are a few options for those with bad credit.

  1. An FHA/USDA/VA loan: These are special program loans for those who qualify. The FHA loan comes with 3.5% down payment. The USDA loan offers financing for those in rural and low population areas, and the VA loan offers 100% financing for veterans.
  1. Private Mortgage Insurance (PMI): This is an additional fee the borrower pays the lender if they are deemed risky.
  1. A Larger Down Payment: For those who might be credit-poor but cash-rich, this is a good option. A larger down payment is good leverage when dealing with a lender, and if they are worried about you making your monthly payments, you can give them more upfront.
  1. Co-signer: Someone with good credit who is willing to be responsible if the monthly payments are not made.
  1. Fix Your Credit: Bad credit is not permanent. There are many ways to fix your bad credit, and it may take less time than you think. There are a few articles that explain just how to do it.

Back to: How to Prepare to Buy a Home