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July 6, 2011

5 Steps for Buying a Home with Bad Credit

Category: Home Financing Tips,Subprime Home Loans – admin – 12:10 pm

If you want to consider buying a home with bad credit, there are several important factors that will help you financing endeavors.  The first step is to obtain a copy of your credit report to see what accounts are reporting late and whether or not there are any errors being reported on your credit cards or loan payments.  It’s a good idea to know your scores and any obstacles before applying for a bad credit mortgage.  If there are issues we suggest addressing them before submitting your home loan application to a lending professional.

If you have a credit score below 620, you may need to come up with a bigger down-payment.  In most cases first time home buyers who have credit scores above 580 will only have to come up with a 3.5% down-payment on FHA loans as long as the borrowers have a good job and income that can be documented.  FHA still offers home loans to borrowers with a minimum credit score of 500, but if you fall below 580, the underwriter may request a more substantial down-payment.

Finding a bad credit lender can be cumbersome as many loan companies have eliminated their subprime loan programs for purchasing and mortgage refinancing.  There are still a few lending options for bad credit home loans, but mostly from government programs like VA and FHA.  The other popular conventional loans conform to the Fannie Mae and Freddie Mac criteria and they have tightened their guidelines significantly over the last few years.  When shopping bad credit mortgage lenders, make sure the loan representative understand your goals and credit credentials.  You want them to understand your credit and abilities for down-payments.  If the lenders do not offer VA or FHA home loans and you have credit scores below 620, chances are this lender will not be able to help meet your home financing needs. Once you find some lenders that meet your goals, make sure you compare “Good Faith Estimates” so you can evaluate the home loan rates and closing costs.

Buying a Home with Bad Credit

  1. Get a Free Copy of Your Credit Report (make sure the report shows your scores from all 3 bureaus)
  2. Verify Your Debt to Income Ratio and Credit Scores meet the lenders criteria for home purchase loans
  3. Compare Loan Quotes from FHA Lenders (make sure that your lender is FHA Approved to offer financing in your region)
  4. Obtain the Loan Disclosures from each Lender that is Quoting You Rates and Loan Offers
  5. Get a Pre-Approval in Writing from each Mortgage Lender


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