How To Get A Home Loan With Bad Credit – Follow These Easy Steps

how to get a home loan with bad credit

How To Get A Home Loan With Bad Credit

Bad credit.  A phrase that feels like a four-lettered curse word when used to personally describe our financial status. A late bill here and there. An accidentally missed payment one month that goes unnoticed. A few life situations that lead to overextending ourselves. A job situation that doesn’t quite go as planned.  So, one has to wonder what strategies exist on how to get a home loan with bad credit when I have all of these negative hits to my history.

These situations are becoming more and more common as our economy shifts between vulnerability and stability, and these two words – bad credit – are becoming something of a Public Enemy #1.

how to get a mortgage loan

The reality is that our current national average credit score is below 700, which means a large group of us don’t have what’s considered to be the desired prime credit.

However, bad credit doesn’t have to be the final ax that dictates whether we can proceed in life, or not.

In fact, when it comes to purchasing a new home, there are definitely some extremely feasible and financially viable options for how to get a home loan with bad credit.

Now, let’s take a look at some of these tips and tricks to help you track down your next Home Sweet Home!

This is it. You’re ready to track the perfect home for yourself and/or your family. You’re actively cruising through every home buying app, searching for your new home wish list, and you even have a few fabulous homes saved to your profile.

Sound familiar?

The only obstacle that dances around in the back of your mind involves those two ugly words – bad credit.

So, let’s take a look at some easy steps that will help you figure out how to get a home loan with bad credit.

Eliminate the enemies of bad credit

There are a handful of things that we need to evaluate in our spending habits when thinking about buying a home.

These are issues that contribute to our overall credit, and usually, reasons why we may get denied for a mortgage the first time around.

In fact, eliminating any and/or all of these enemies from our financial situation will greatly improve our chances of scoring that home loan.

  • Missed credit card payment OR being over your credit card limit
  • Stopped payments on an existing loan (i.e. car, home, home equity line of credit, etc)
  • Unpaid taxes
  • Unpaid legal fees (i.e. missed child support payments, other court/legal fees)
  • Collection agencies tracking down cash that you owe

Furthermore, if any of these situations apply to you – start an actionable plan to eliminate them.

They’re bringing you down…literally!

Build your credit

how to get a home loan with bad credit

This sounds like a really long step when you are looking for options of how to get a home loan with bad credit, but truly, it’s not as time-consuming as you may think.

The world of finance has created some pretty stellar options to quickly build your credit, and in the case of trying to secure a new home loan, these could be extremely helpful options to get you moved into your new residence ASAP!

  • Make every payment on any current or outstanding loans/bills
  • Try a credit builder loan
  • Dispute any flaws on your credit report
  • Consider a debt consolidation loan (only after very close evaluation of the company and the terms)
  • Keep accounts open that are totally paid off
  • Don’t open any NEW accounts
  • Consider paying bills every two weeks
  • Negotiate payments with creditors
  • Only use what you can pay back

Incorporating one or more of these options can, potentially, expedite your credit score from low to home loan ‘go’ in just a few weeks or months.

Availability of alternative loan types when you have bad credit

In the past, there have always been three main home loan types: Fixed, Arm, and Balloon.

Most of all, these are fantastic options if you have stellar credit, but for the rest of us – let’s take a look at some more feasible, alternative loans that can answer our request for how to get a home loan with bad credit.

FHA Loan

  • No credit score required; major lenders usually looking for about a 580 FICO score
  • Down payment of about 3.5%how to get a home loan with bad credit
  • Loan limits based on area of residence

Good Neighbor Next Door

  • Available to teachers (preK-12), firefighters, EMT’s, and law enforcement officers
  • Homes are available in specific areas of revitalization, listed specifically for this program
  • Must live in residence for a minimum of 36 months

Conventional 97

  • Credit scores as low as 620 considered
  • Down payment of only 3%
    • Option: can be paid by a 3rd party blood or marriage-related relative
  • The property must be a single-family, co-op, PUD, or condo
  • At least one buyer has not owned a home in 3 years
  • Loan amount at or below $424,100

USDA Loan

  • Credit scores of 620 or higher are streamlined for approval; lower or no credit scores must meet more specific underwriting standards
  • Available for homes in rural areas
  • Loan limit based on location
  • Monthly payment minimum qualifications

VA Loan

  • No down payment required
  • No mortgage insurance payment required
  • Available to all active, non-active, honorably discharged military member, or surviving spouses

Gone are the days that only the A+ credit scorers can purchase homes. As a result, for those of us that may have run into some financial hurdles, missed a few payments, ohow to get a home loan with bad creditr just dealt with the reality of life getting in the way…

…all is not lost when trying to figure out how to get a home loan with bad credit.

In fact, just a few financial housekeeping strategies and remedies can help us rebuild our credit enough to be considered for one of the traditional types of home loans.

Furthermore, If we don’t quite fit the expectations and stringent requirements for those traditional types of loans – we have some quality backup options.

Also, the desire to make an offer on your perfect home is never outside the scope of reality.

A few simple tips and tricks can ensure that we figure out the perfect option for how to get a home loan with bad credit.

Finally, focus on the end goal of moving into your perfect home and remember to make wise credit boosting decisions while avoiding the biggest money mistakes.

So, let’s close on that home!

Get Control of Your Credit With Our Free Ebook

* indicates required



 

6 Comments

  1. Some great tips here on how to build your credit!

    About 20 years ago my husband and I found ourselves in a bit of debt. Okay, well actually, it was a lot of debt.

    It was due to something out of our control, but that didn’t help how we felt. So we got in touch with a consumer credit counseling agency and they went to bat for us with our credit card companies.

    In some cases, they were able to get our interest rates lowered. In others, they consolidated the monies we owed.

    In the end, we paid every cent back and our credit scores actually soared! We just bought a new car and the salesman at the dealership said he never saw a credit score as high as ours.

    I think it was 900 and something… Being in debt is the worst feeling in the world (my opinion).

    If you are dedicated to the intelligent use of credit, I cannot think of a better way to serve people!

    • Hi Jackie – Great story and thanks for commenting on the post.

      I am glad to hear you have worked out your bad credit problems.  And congratulations on the incredibly high credit score. The salesman was probably exaggerating slightly, as the highest FICO score achievable is 850. 

      Still, if you are anywhere near that, you are in great company with the select few that have credit scores higher than 800.

      Either way you worked out your bad credit problems, so now you know how to get a home loan or any other loan including car financing with bad credit.

      It just takes time, by making your payments on time and building a credit profile that translates into a perfect or a least a near perfect credit score.

      Patrick

      Credit Squared

  2. Very good page. There is a lot of good information and advice here. When you talk to us about the different steps you need to take to bring a credit score up, like making up missed payments or dealing with collection agencies, this is sound advice.

    I do like the list of “Build Your Credit” ideas. I like the idea of paying bills more frequently if your pay plan allows you to do so. Also, probably the best advice on that list is “Keeping accounts open that are already paid off.” People always do the wrong thing and close the accounts.

    As a reader of this page, I would find it even more helpful if there was a paragraph under each bullet point, explaining why I would want to do a particular thing, like why I would keep these accounts open, or what a credit builder loan is.

    Thank you for the information on this page! I have bookmarked it to my Google because there is more here that I want to come back and read. 🙂

    Linda

    • Hi – Linda.  I’m happy to hear the post was informative. There are lots of great tips in this post on how to get a home loan with bad credit.

      Obviously, there are many loan options available, but if a borrower has bad credit, they first must take actionable steps (suggested in the post) before they can qualify.

      This post was a centered around general information about how it’s possible to get a home loan with bad credit. 

      Future posts will provide more details about options borrowers have like disputing credit, credit builder loans and other credit improvement strategies.  

      So, thanks for bookmarking this site and please share it with your friends.

      Patrick

      Credit Squared  

  3. It is interesting that the national average credit score below 700 can almost be translated as the norm, which comes in a relatively short time after the real estate crisis.

    When it comes to money mistakes, people tend to have short memories.

    However, the lending institutions have to be creative in allowances for less than stellar credit, or they will run out of individuals to lend to.

    It becomes a cycle. Do you think it is secure direction they are headed in?

    • Hi Judith – Very astute observations.

      The impact of the most recent financial crisis on the housing market would leave one to pause and wonder if we are headed that way again.

      All cycles come to an end, and more than likely will occur again in the future.  Having said that I don’t think the impact will be as great.

      The real problem causing the Great Recession was lending to people that had no business owning a home.

      With high loan to value ratios, stated income loans, pick your payment and the proliferation of the sub-prime mortgage market, all contributed to destabilizing the mortgage market.

      If lenders return to the lending practices of the past and try to place too many borrowers in a home loan with bad credit, then you may see a repeat of the past.

      Patrick

      Credit Squared

        

Leave a Reply

Your email address will not be published.


*