While home prices are dropping today, the availability of credit for home purchases has been dropping also. For many people, getting a bad credit mortgage with bad credit isn’t easy. But don’t think that it s impossible either. The fact is, if you know the rules and can plan, you can buy a house with bad credit.
Right now, many Americans are being foreclosed out of their homes. Once you are foreclosed upon, the Federal Housing Administration, or FHA, which guarantees the vast majority of loans in the U.S., requires that you cannot get another mortgage for three years. so if your foreclosure is recent, you can’t get a conventional home loan to purchase a house. Start right away using that time to rebuild your credit.
If you have not suffered a foreclosure, but have declared bankruptcy, similar rules will apply, where your bankruptcy has to have been discharged at least two years ago to be able to qualify.
If you haven’t declared bankruptcy or suffered a foreclosure, you biggest issue will be your credit score. (And if you have had bankruptcy or foreclosure in your past, you will still need to bring up your score as well to qualify for loan programs.) Credit scores under 615 are nearly impossible to underwrite today. You can possibly get a loan in the 600′s above 615, but remember that the lower your score, the higher the interest rate you will pay. If your score is under 615, though, you can always take steps to get credit repair help, and bring up your score if you start paying on time, pay down delinquencies, and so on.
Some possible good news is that after three years, you are likely to qualify as again being a new home buyer, which means you can apply for a loan with just 3.5% down payment. Remember though that the more you can put down, the better, as your loan will cost less in the long run, especially if you are paying a high interest rate.
And what about buying a house without getting a conventional FHA mortgage? You have other options. For example, buyers who are also having trouble making payments might let you take over their mortgage and move into their home. Or, if you have cash, you can talk to people in foreclosure and possibly get a home for less than if you needed a loan. Some sellers are desperate and will finance the home themselves, so you don’t have to go through the FHA. There are also investors who buy, fix, and resell homes, who might consider allowing you to purchase on a lease option, where you rent until you can qualify to buy the home. Don’t be shy about asking about any of these options, as sellers are willing today to be more creative if it means they will sell their home.
The bottom line is, if you want to buy a house with bad credit, its possible to do it, you just have to either be creative about finding a home, or be patient and take all possible steps to rebuild your credit and save a down payment to be able to qualify.
