Many people dream of buying a home, whether it’s an investment property or a place to call their own. Buying real estate can be more challenging if you don’t have a great credit score. However, it’s not impossible. Today, we’re going over how to buy a house with bad credit. So, whether you’re an aspiring homeowner, an investor, or you just want to learn more about the process, just keep reading.
Contents of This Article:
- Can You Buy a House With Bad Credit?
- What’s Considered a Low Credit Score?
- Bad Credit Real Estate Loans
- How to Get a Mortgage With Bad Credit
- Protect Your Assets With Property Management
Can You Buy a House With Bad Credit?
Yes, it’s possible to buy a house with bad credit. Plenty of programs and loan types allow for lower credit scores. For instance, homeowners can get a conventional home loan, and investors can get a hard money loan even if they have less-than-ideal credit. Then, rental property management in Washington, DC, can take it from there.
Additionally, having a lot of cash is great if you’re looking to buy a house with bad credit. The more you can use as a down payment, the better. After all, with a bad credit score, you may only qualify for a certain loan type or loan amount, and having enough cash to cover the difference can help you get the home you want.
While lenders have different requirements, if you have bad credit, most may require larger down payments or charge higher interest rates. So, it’s important to be prepared for higher monthly payments.
What’s Considered a Low Credit Score?
Most lenders look at your FICO Score to determine whether or not they’ll give you a loan. However, the minimum score required may vary by lender and loan type. For instance, conventional loans (the most common type of mortgage loan) usually have a minimum credit score of 620, while other loan types have more lenient credit score requirements.
If your credit score is below 580, it’s considered poor, and lenders could see you as a risk. Even if your score is below 670, lenders may be hesitant. The average mortgage borrower has a credit score higher than 770, according to the Federal Reserve Bank of New York.
Here’s how the FICO credit scoring model works.
| Credit Score Range | Rating |
| Below 580 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very Good |
| 800 or Above | Excellent |
Bad Credit Real Estate Loans
If you’re looking to buy a home and don’t have great credit—don’t panic. Plenty of loan types can help you achieve homeownership, even with less-than-ideal credit. Even if you’re an investor and want to expand your portfolio, you have options, too. Here are a few loan options and the average credit score requirements.
Conventional Loans- FHA Loans
- VA Loans
- USDA Loans
- Hard Money Loans
Conventional LoansConventional Loans
Conventional mortgage loans aren’t insured or guaranteed by a government agency like other loan types. Instead, they’re offered by private lenders like banks, credit unions, and mortgage companies. As such, it may be harder to qualify for a conventional loan if you have poor credit. Most lenders require a minimum score of 620, and some may even set the minimum higher.
FHA Loans
FHA loans are backed by the Federal Housing Administration and are great for low-to-moderate-income borrowers with less-than-ideal credit. You can usually secure an FHA loan with a credit score as low as 500 with a 10% down payment or 580 with a 3.5% down payment.
VA Loans
If you’re a veteran, military member, or married to someone who has served, you may qualify for a VA loan. The U.S. Department of Veterans Affairs backs these loans and allows you to purchase a home with $0 down. Like with FHA loans, you must meet certain standards to qualify. That said, while the VA has no minimum credit score requirements, most lenders do, and it’s usually around 620.
USDA Loans
A USDA loan is a great loan option for those with low-to-moderate incomes. These loans are backed by the U.S. Department of Agriculture and allow you to purchase a home in a qualifying rural area with $0 down. That said, while there’s no set credit score requirement, most lenders require a minimum score of 620.
Hard Money Loans
If you’re an investor looking to expand your real estate portfolio, hard money loans can be very helpful. Most hard money lenders look at the income property as collateral instead of your financial history. As such, you can get a hard money loan with poor credit as long as you can afford the higher interest rates and repay the loan within short terms, usually one to three years.
How to Get a Mortgage With Bad Credit
If you’re looking to secure a loan with poor credit, there are several things you can do to increase your chances. Here are a few tips to help aspiring real estate buyers overcome the challenges of bad credit.
- Look for Errors in Your Credit Report
- Pay Off Debt
- Look At Different Options
- Save for a Down Payment
- Find a Co-Signer
Look for Errors in Your Credit Report
If your credit is low and you don’t know why, check your credit report for errors. You can get a free copy of your credit report from one of the three major credit bureaus–Equifax, Experian, and TransUnion–once a year. Look over your report for any inaccuracies, like outdated entries, incorrect account information, or fraudulent accounts. If you find something that doesn’t make sense, dispute it with the credit bureau to have it corrected or removed.
Pay Off Debt
Pay Off DebtPaying off your existing debt can help increase your credit score and your chances of getting a loan with good terms. After all, lenders will look at your debt-to-income (DTI) ratio to assess your ability to make monthly payments. If you have a lot of existing debt, it can be a red flag. So, start by paying off high-interest debt first, like credit card or personal loans, and work on getting your DTI ratio below 45%.
Look At Different Options
Every lender is different, so it’s important to look at all of your options. Some may offer lower rates and fees than others, and it doesn’t hurt to get more than one quote. After all, it could potentially save you thousands on a 30-year mortgage. Remember, banks aren’t the only place to get a loan, either. There are also private lenders, credit unions, and other types of mortgage companies to explore.
Save for a Down Payment
When you have a lower credit score, you may have a better chance of securing a loan if you have a larger down payment. This helps lower the total loan amount and minimizes the lender’s potential losses if you default on the loan. Each lender requires a different down payment amount, but overall, the more you can pay, the better.
Find a Co-Signer
If you have bad credit and you’re looking to get a loan right away, consider asking a friend or family member with better credit to co-sign for you. A co-signer with strong credit helps boost your chances of securing a loan with better terms, as the lender will consider their credit along with yours. However, remember that relying on a co-signer is a huge responsibility, and if you miss any payments, it can affect both you and your co-signer’s credit.
Protect Your Assets With Property Management
Whether you’re looking to invest or want to buy your first home, it can be challenging–but still possible–with poor credit. However, if you’re looking to buy a home with bad credit, it’s important to know your options and prepare accordingly. Look at different loan types and work to increase your chances of being approved for a mortgage loan.
Need More Advice? contact us today!
If you’re adding to your real estate portfolio with a hard money loan, consider hiring professional management to keep things in order. Bay Property Management Group can help with every step of the rental process, from marketing to tenant screening, maintenance, rent collection, and more. Contact BMG today to learn more about our services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC.
