How to Buy a House with Bad Credit
The most simple answer to the question of how to buy a house with bad credit is to pay cash for your home purchase. While easy to say, this is, of course, not always a viable option, and if you had enough cash for an outright purchase, you probably wouldn’t be reading this page. Here we’ll focus on buying a new home from the aspect of financing one with bad credit.
First of all, what you need to know if you have bad credit is that you’re not alone. Over 110 million Americans have some form of delinquency appear on their credit report, and nearly half of them fall into the category of having “bad credit”. Do not think for a second that just because you have bad credit you will not be able to finance a home. In fact, there are hundreds of banks out there specializing in this exact area. The only differences between you and someone with good credit is that it will generally take you longer to find a lender; also, great approval, and a higher down payment will be required, and the interest rate on the loan will be higher.
The first step in buying a house with bad credit is to make an attempt to improve your credit rating. A recent survey suggests that as many as 70% of credit reports contain at least one error. There are three ways you can work on improving your credit. The first is to contact lenders where there is no existing balance owed, but a previous delinquency shows up on your report. Ask these lenders to remove the negative mark from your credit; you’ll be surprised how many will actually comply. If you have bad debts that have been delinquent for an extended period of time, call the credit company and offer a small settlement. Many lenders are willing to take as low as 30 percent of a delinquent loan in order to settle it. Once settled, this will still show as a past negative but will be removed from your current delinquent and current debt balances, which should immediately improve your credit score. The final method is to dispute transactions with the credit bureaus. The Federal Trade Commission (FTC) provides information on this topic on their website, click here for details.
If you have a friend or family member willing to help you out with a private loan, or even a gift if you’re so lucky, it will become easier to obtain a bad credit mortgage loan as you’ll now have a larger down payment. What is important here is that you have the down payment, no matter what source it is coming from (borrowed, gifted, or your own savings) in a bank account in your name only, six months prior to requesting the loan. Potential lenders do not allow down payments to be made by others, and most will require bank statements as evidence that this is your own cash you’re using to make a down payment.
Once your credit is fixed to the best of your ability and your down payment is saved, you’ll need financing. For information on this, see our page bad credit home financing, or for more details on how to buy a house with bad credit, navigate our website further by clicking on relevant links.