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Six Ways You Can Still Buy a Home, Even With Bad Credit

By Michelle Ranken 3 min read
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home buying with bad credit

Credit is a tricky thing, and it seems like anything can send your credit down the drain, from having a short credit history to having an open credit report dispute. You’ve probably been told your entire adult life that if you have bad credit, it’ll be nearly impossible for you to get a mortgage loan, and because of this, purchasing property is off the table for you – not necessarily true! We previously showed you how you can save big while buying a home, now let’s learn how you can still buy a house with less-than-ideal credit!

Expect a Larger Down Payment

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Unfortunately when you have bad credit, you’ll have to expect to spend a bit more on a down payment. But this means that you’ll borrow less for a loan, so lenders will look more favorably on your loan. You should aim for a down payment that’s at least 20% of the total price of the house, so that you have the best chance of getting a mortgage. Needless to say, start saving early in anticipation!

home buying with bad credit

Consider Different Types of Loans

A conventional mortgage loan is one that’s not insured by the federal government, and there isn’t a minimum income requirement for securing one. However, the minimum credit score required is generally 620 or more, but there is a way you may be able to get around this: if you have a high income compared to your loan amount, or a larger-than-minimum down payment, you may still qualify for a conventional loan with a credit score that’s below 620. 

Another type that you may want to consider is an FHA loan, which is backed by the Federal Housing Administration and is typically the easiest type of loan to qualify for if you have bad credit. This type of loan has lower requirements – for example, one only needs a credit score of 500 to qualify.

And lastly, VA loans can work specifically for veterans or those who are currently serving in the armed forces. This type of loan is backed by the Department of Veteran Affairs and allows for a $0 down payment.

Pay With Cash

If you’ve got bad credit, consider paying for everything you can with cash. Doing so will make it more likely that you’ll get approved for a lower loan amount because it’s simply less risky.

Find a Co-signer

If you’re fortunate enough to know someone who would be willing to be a co-signer on your home loan, then by all means, take advantage of that. Having a co-signer may allow you to qualify for a home loan even if you’ve got less-than-ideal credit because their income and credit history is considered along with yours. This may even give you a bigger budget if your co-signer has good credit.

home buying with bad credit

Increase Your Available Credit

It’s a no-brainer that during all of this you should be working toward improving your existing credit score. Once things have improved a bit, try increasing your available credit, which can help raise it a little faster. 

Fix Your Credit Score on the Fly

Luckily, there are a few things you can do to fix up your credit score a bit in a short amount of time. Firstly, check your credit report for errors and get them resolved. Secondly, you can get added as an authorized user on the credit account of a family member or spouse if they have a good credit score. This can bump up your credit in a short amount of time. And lastly, look into getting a “rapid rescore” which is a way for credit institutions to process improvements in your credit score more quickly.

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