New Hampshire Logo

Back

Buying a Home with Bad Credit

By Derren Peters

When purchasing a home, your credit will play a very pivotal role in determining if you will qualify for a mortgage that will make buying a home possible. It is useful to know that you can still buy a home even if you have bad credit. Whether you have bad credit from poorly managed debt, have filed bankruptcy or have gone through a foreclosure, there are mortgage loan programs you can utilize that are specifically designed for those with less than favorable credit.


Different types of home loans for bad credit



There are three specific kinds of bad credit loans for first time home buyers that you may qualify for. These are FHA loans, VA mortgage loans, and subprime mortgage loans.

An FHA loan, otherwise known as a Federal Housing Administration insured loan, is a loan program that has been provided by the federal government since the 1930s to help stimulate the housing market, and it is designed to provide options for people who have fair or poor credit, have a low down payment (minimum of 3.5%), have undergone bankruptcy, or have been foreclosed on. It is the easiest type of real estate mortgage to qualify for and it is easy to transfer to a new buyer, should you decide to later sell the home. However, since it lacks other strict standards of a conventional loan, an FHA loan requires two kinds of mortgage insurance premiums, and for the house meets certain conditional standards via an appraisal from an FHA-approved appraiser. To qualify for an FHA loan, a borrower:

  • Must have steady employment history or worked for same employer for the last two years.

  • Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.

  • Must make a minimum down payment of 3.5% on the house, or 10% down if your credit score is between 500 and 579. The money can be gifted by a family member (conventional financing does not allow gifting).

  • Must have a property appraisal from an FHA-approved appraiser.

  • Mortgage payment (including principal, interest, property taxes, property insurance) needs to be less than 31% of your gross monthly income.

  • Monthly debt (mortgage, credit cards, auto, student loans, etc.) cannot be more than 43% of your monthly income.

  • Must have a minimum credit score of 500. A credit score of 580 and above requires a 3.5% down payment and a credit score of 500-579 requires a 10% down payment. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.

  • Must be two years out of bankruptcy, with good credit.

  • Must be three years out of foreclosure, with good credit.

The VA mortgage program is designed for first time homebuyers who are veterans of the armed services. Many times, VA loans will allow a first time homebuyer with bad credit to buy a home with no money down and then benefit from historically low interest rates on their loan. If you are in active duty, in the reserves, or you are married to someone who is, this could be one of the best bad credit loans for first time homebuyers as its down payment and interest options are most favorable to you.

Finally, there is a subprime mortgage loan option, which is specifically for the first time homebuyer with bad credit. A subprime mortgage is a type of loan granted to those with poor credit, often with scores below 600, who, as a result of their poor credit score, would be unable to qualify for other types of mortgages. Since those with poor credit history present a higher risk to mortgage lenders, candidates for subprime mortgages are charged high interests rates than the prime lending rate. Although a subprime mortgage will cost borrowers more in the long run, it is a good option for someone with bad credit who has few other options for a home loan.


Advice for Home Buyers with Bad Credit



If you know you have bad credit and are certain that you still want to purchase a home in the near future, the best advice to take to heart is to plan ahead and try to improve your credit score by producing some positive credit history. And then, before you apply for any of the above-mentioned mortgage loans, make a concerted effort to reduce your regular monthly expenditures and keep them steady; doing this will help you better afford your new mortgage payments in the long term once you are approved, and set you up for a problem-free home buying process.


Popular Articles:

How to Improve Your Credit Score

How Much House Can I Afford?

Buying a Short Sale Property

Homebuyer's Checklist

4 Tips for Managing Your Budget

Mistakes to Avoid When Selling a House

How to Flip a House

Share this:

Comments

Leave a comment:

* Login in order to leave a comment. Don't have an account? Join for Free
9 hours ago

Brian Chappelle

I paid off my hospital bills from the collection agency that the hospital sent me to and the collection still appears on my credit report. I am trying to get a house & I called the collection agency &

... More
Reply
16 hours ago

Bradley Malvin

DEBOOTH is splendid and offers reliable, and fast services. My bad financial record was written off within 8days of contact. DEBOOTHCREDITSOLUTION helped me edit all errors from my credit reports, my

... More
Reply
18 hours ago

sara mills

Having better credit means more options and, when it comes to making big purchases in life, options are what you want. He fixed my credit and increased my score to 775 in as little as 3 days, making

... More
Reply
19 hours ago

Sara German

Hi everyone my name is Sara, New Orleans few weeks back I was in a state where I cannot afford to take care of my family and almost losing our house due to bad credit report and low fico score. I had

... More
Reply
1 day ago

adam carl

would love for you to try jamey garris for your credit repair, he is affordable and trustworthy. he was introduced to me by my wife. because i always complain about my low credit score, then i cant

... More
Reply
1 day ago

mercy lewis

my credit score was 431 i couldnâ??t get approved for a loan, a car, a houseâ?¦ NOTHING because i was battling with paying medical debt and couple of credit cards debts too and i never believed that

... More
Reply
1 day ago

Jason Ray

I never believe credit score is very important until now that my score get low of 480 and i really need to get a new home for my family because will need a privacy. So i was false to contact Rich

... More
Reply
1 day ago

Tony Gross

This email will save your life anonymouscreditrepairer (at)gmail(dot)com, emailing him saved mine. Heâ??s a hacker capable of erasing negatives from your credit, fixing your credit scores and he also

... More
Reply
2 days ago

Randy Smedes

Hi, Great review!...My wife and I searching to buy our first home. I own a business that just took off this year and my wife has a fixed income. We both wanted to get a home so desperately but got

... More
Reply
3 days ago

terry banks

cant believe i can be able pay off my rent,i almost got evicted from my

apartment, because of my low credit score,and a friend told me i can get my

credit score rise and he

... More
Reply
3 days ago

Cooper Berry

You need not go a long way again by trying to increase your credit score or clear of debt and late payment. Here is the special and amazing and affordable hacking when it comes to all sort of hacking

... More
Reply
3 days ago

Nancy Owen

I contacted the Kevin Mitnick about my poor credit score, the bad inquiries i have on my report and my eviction as well. He promised to get all solved within 72hours. We got talking and he got

... More
Reply
4 days ago

Robert Abbott

I read several good reviews on Google about credit repairer until I get in touch with Claud Bateman. He explained the process to me in a very simple terms and He help me boost up my credit score to

... More
Reply
4 days ago

bella raines

My name is bella raines, i almost got myself evicted from my apartment all because of my low credit. then i was introduced a credit repair called jamey garris, he make sure my debth is cleared and

... More
Reply
5 days ago

Pam Spencer

About 2 weeks ago I tried getting a loan but to no avail, I didnâ??t get approved because my credit score was in the low 400â??s, I came across a comment about a credit expert ANONYMOUS TRUCKER

... More
Reply
11/4/2019

Tom Keith

Its been a very tough 3 years after I got outta jail as I'm unable to get a good job for myself. I got turned down after every background and criminal check. This was really hard on me as I'm barely

... More
Reply
11/4/2019

chad ramus

Just like that i was approved for a Capital One card and I don't need this but my deposit is there so i may as well keep the card now and this came true when i contact DARK WEB. A lot of people want

... More
Reply
11/4/2019

danny henry

My name is Danny from Canada and I must convey my appreciation for your generosity supporting men and women that absolutely need solution to their low Credit Score and poor Credit Profile. Your

... More
Reply
11/3/2019

Kari Butler

I was once in a bad shape when i experience low credit score of 545 ,I lost hope and got disappointment Until i got in touch with TRUCKER and he said his capable of fixing my credit issue. He help me

... More
Reply
11/3/2019

Vicky Henderson

So, itâ??s true. All the reviews Iâ??ve been reading about KEVIN MITNICK is true, I had a very low credit and bad evictions on my profile, I couldnâ??t get a house, I applied for a mortgage and auto

... More
Reply



About The Author

Become an Expert Contributor

Have some knowledge to share, and want easy and effective exposure to our audience? Get your articles or guides featured on New Hampshire Homes today! Learn more about being an expert contributor.

Learn More