A home is the largest asset most American’s will own.
For people with bad credit owning a home can seem like a distant dream.
Don’t lose heart yet though, there are lots of things you can do to make your dream become a reality.
Follow this guide to learn more about home loans for bad credit and how they can help you live out your own American Dream.
Check Your Credit Score and Report
The first step to buying a house with bad credit is to know just how bad your credit actually is. Get the numbers and the report those numbers are generated from.
US law requires each of the three credit agencies to provide a free annual credit report to all Americans. Go over yours and make sure there aren’t any errors present.
Even if your credit is legitimately low there’s a good chance old or discharged debts might still be on your report. Even a 20-30 point increase in your credit score makes a big difference.
Save a Large Down Payment
If you’ve got bad credit a large down payment is essential for a traditional lender. It helps them understand that you’re able to budget and save.
It also lowers the overall risk of a loan. 20% is the standard advice for best rates and acceptance chances.
Most bad credit mortgage loans from traditional lenders won’t accept any potential lenders with less than a 20% down payment.
The Federal Housing Authority (FHA) offers insured mortgages for potential buyers with less than perfect credit. As long as you have a credit score above 500 there’s a good chance you’ll qualify.
This program is great if you aren’t able to come up with a large down payment. You can purchase a home with just 3.5% down with a credit score above 580.
If you can come up with 10% you may still qualify with a credit score of just 500. FHA loans are handled by private companies and insured by the federal government.
You’ll be required to meet certain criteria and pay mortgage insurance premiums every month in addition to your mortgage amount.
Private Home Loans for Bad Credit
If you’re unable to qualify for an FHA or traditional loan there are still ways to buy a home of your own. Non-traditional and online lenders will sometimes offer bad credit home loans.
The difference between these and standard mortgages usually has to do with terms and rates. You’ll need to go through the full loan origination process and prove that you have the means to repay the loan.
The interest rate charged will be a good bit higher than on a traditional mortgage. The rates won’t be as high as a payday loan online or with a credit card, but they will be more than the low rates you see advertised on TV. If you’re willing to accept that you go ahead with your plans of buying a home.
Bad credit can make you feel like every financial door is shut. As long as you’re willing to work hard and improve yourself there’s no reason you can’t find home loans for bad credit.
Check out our learning center to find more ways to improve your credit and build your financial future. Here are some other articles you might find helpful:
Mortgages and auto credit – common types of installment loans in everyday life
Your guide to personal loans for bad credit with guaranteed approval
How to get a Mortgage after bankruptcy
Bad credit installment loans online