Don’t Let Bad Credit Keep You from Your Dream Home
You may be yearning to start down the homebuying path, but you think your credit stands in the way of your plans. While credit is an important part of getting approved for a mortgage loan, it’s not the only factor. You can still qualify for a loan without a high credit score. Read on for tips on bad credit loans and ways to increase your credit score.
How Bad Is Bad?
Before assuming that a late payment or too much debt has ruined your chances of securing a mortgage, check your credit score. Find a reputable lender to pull your credit. Here’s how credit scores stack up.
- 850-700: Congratulations! It will be smooth sailing to qualify for a mortgage as long as you meet the other loan requirements.
- 699-680: You may not have open-ended options like the scores above, but you can be confident you’ll be able to qualify for a loan if your credit score falls in this range.
- 679-620: This is where your opportunities for homeownership narrow a bit. Attempt to qualify for specific loans (which we’ll discuss later), and accept you probably aren’t snagging the best interest rates if you do get approved.
- 619-580: Falling in this credit score range makes it tough to secure a mortgage loan. It’s not impossible, but you won’t have many options. You may need to spend a few months raising your credit score, which we’ll discuss later.
- Below 580: There are a few programs you may be able to use to get a loan, but the opportunities are slim. The good news is, you can still improve your credit and increase your options.
Bad Credit Home Loans
If you’re a hopeful homebuyer with fair or bad credit, there are some loan programs that may help you get into a home. Here are a few of our favorites.
- FHA LoansBacked by the Federal Housing Administration, these loans are available to buyers who fall into certain income parameters and are purchasing homes in certain price ranges. These loans don’t concentrate as intently on credit scores as other loan programs. If your credit score is 620 or above, and you meet the other requirements, an FHA loan may be the vehicle to get you into your dream home.
- VA LoansIf you’re a veteran or active-duty military, you may qualify for a VA loan. These loans approve borrowers with a credit score of 620 or above, provided you meet their other requirements.
- USDA LoansThis is one of the bad credit home loans to use if you’re purchasing a property in a rural area. Backed by the U.S. Department of Agriculture, the USDA loan program is more lenient on borrowers who lack good or excellent credit.
Increasing Your Credit Score
If your credit score is less than impressive, you can widen your loan options by doing a little work. Sometimes just a little effort can increase scores by 30, 50, or even 80 points in just a few months! We recommend these actions.
- Get a copy of your reportAsk the lender for a copy of your report, or pull one yourself. Look closely at every tradeline to make sure the debts are yours and the balances are correct. Look for any late payments, collections, or other mistakes. There are errors on about one in four credit reports!
- Dispute errorsIf you find accounts that aren’t yours or late payments when you weren’t late, dispute them with the credit bureaus, Experian, TransUnion, or Equifax. If you can provide evidence the information was reported in error, the credit bureaus must remove the information. We’ve seen credit scores rebound 50-90 points by having one error removed.
- Pay your bills on time Your payment history is the most important factor that contributes to your credit score. If you have recently paid your bills late, get and stay up to date. Over a few months’ time, your good payment history will begin outweighing your bad, and your score will start improving.
- Control your debt loadYour credit card debt may be hurting your credit score. When your balance gets above 50% of your credit limit, your credit score starts decreasing. This is because high amounts of debt make you look like a bigger credit risk. Stop charging on your credit cards and start hacking away at your balances to bring your credit scores up.
- Don’t apply for new creditKeep your credit accounts just like they are, because applying for a new loan creates an inquiry, which can decrease your score even further.
Your dream of homeownership is within reach regardless of your credit score. Take advantage of the bad credit home loans if you can, and if not, do some work on your credit score over the next few months. Don’t give up on your dream!
