If you want to buy a home but have bad credit, there are options. Some options involve applying for a co-signer loan or an FHA loan. Others involve saving up to 20% of the purchase price and getting a good credit score. The best way to get help to buy a house with bad credit is to avoid major mistakes and start saving as soon as possible.
Getting a co-signer loan to buy a house with bad credit is an option for those with bad credit. While the primary borrower must be financially responsible, the co-signer does not have to be. In some cases, a close friend can sign on the loan for the borrower.
Often, co-signer loans are used by young people who are just building their credit. However, they can also be used by individuals who have gone through a financial setback, such as unemployment or a divorce. Having a co-signer can help you qualify for lower interest loans than if you had bad credit.
Getting a good credit score
Getting a good credit score for buying a house with bad credit can be difficult, but it isn’t impossible. While it will take time to improve your score, even a small improvement can save you tens of thousands of dollars in interest and lower your interest rate. You can use the money to pay off your debt and buy a larger down payment. It’s also helpful to learn how to repair your credit before you apply for a mortgage.
Lenders generally prefer to work with customers who have good credit because they have a history of paying off debt. Although you can still apply for a mortgage with a low credit score, your interest rates and fees will be much higher. With these high interest rates, buying a house with bad credit is often unaffordable. You may even be forced to pay a large down payment or wait until your score improves.
Saving 20% of the purchase price
While saving 20% of the purchase price when buying a bad credit house can be challenging, it is not impossible. Saving up this amount can allow you to qualify for a good interest rate and a sufficient down payment. Just remember to take your gross income into account when saving for this amount. By putting 20% of your income aside each month, you can have $20,000 saved up after 12 months and $30,000 saved up after six months.
Depending on the type of mortgage you get, a minimum 20% down payment may be required. While this may seem like a lofty goal, the majority of homebuyers put down much less than this.
Getting an FHA loan
If you have bad credit and are looking to buy a house, there are many different ways to get approved. Many conventional lenders require a minimum credit score of 620 to qualify, but FHA lenders are able to approve loans with as little as 500. Some of these lenders have specific guidelines for borrowers with bad credit, so it’s important to understand those first.
The FHA loan application process typically takes 30 days. During this time, you go through a qualification process and pre-approval process. Once you’re pre-approved, you can begin shopping for homes. Once you find a home you like, you enter into a real estate purchase contract. After that, your loan officer will work with your mortgage processor to gather updated docs and prepare your file for underwriting.