The quick answer is yes — you can buy a house with bad credit. If you’re ready to purchase a new home, but your credit isn’t perfect, you may feel at a loss. Because buying a house with bad credit isn’t exactly simple, we’ll explain the steps within this article.
Multiple systems are in place within the United States to provide mortgages to those in need. We’re happy to say that there’s hope for you and your family.
- Review your credit score
The initial task you want to complete is to check your credit score. Know exactly where your numbers are on each of the three major credit bureaus. There are multiple websites you can use, we recommend: https://www.ftc.gov. Lenders utilize your average credit score to determine your creditworthiness.
- Remove errors from your credit report
If find errors on your credit report, dispute them quickly through the three major credit bureaus. You have the right to dispute almost anything listed on your report. If an address needs to be updated or the account number isn’t correct, ensure they are notified. The bureau will conduct a full investigation and within 30 days update your credit report. An accurate credit report could save you from paying thousands of dollars worth of additional fees.
After you have submitted requests to remove any errors, begin to pay off your credit card balance on each of your credit cards. Your goal is to maintain a credit to debt ratio below 30%. For instance, if you have a $10,000 limit on a card with a $6,000 balance, your credit to debt ratio is 60%, which is well above 30%. When you pay off the open balances on each card, you end up paying less in interest fees. The lower your credit card balances are, the more your credit score will increase. Be sure to have any accounts sent to collections removed from your credit report. You can do this by contacting the creditor and request the removal.
- Use mortgage lenders with low credit
There are loans that lenders provide to those with “bad credit”. One resource they use is a FHA loan. In order to qualify, you must apply. For eligibility purposes, you’ll need a credit score of at least 500 and make a downpayment of at least 10% listing price. Of course lenders can decide which loans they will use. You’ll need to “shop around” to find the best lender for your needs. Here are the categories:
720+ = Excellent credit
680-719 = Good credit
620-679 = Fair credit
580-619 = Poor credit
579 and lower = Bad credit FHA Home Loans
- Receive pre-approval
When you find a lender who will work with you, the next step is to acquire a pre-approval letter. Your loan officer will verify your credit scores, review your credit history and calculate your credit to debt ratio. They will also require income statements and banking documents.
- Locate a real estate agent and find a home
With pre-approval documents in hand, you can safely search for a home in your predetermined price range. This will save you and your real estate agent time during the home search. You will want to start with hiring a knowable real estate agent who works with FHA mortgages.
The above 6 steps will help you avoid getting overwhelmed and confused when preparing to buy a house with bad credit. Contact BetterCredit today if you want to repair your credit and boost your credit scores.