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
1 hour ago

MARY LAWRENCE

Hi Guys, letâ??s talk about the FICO score; those important 3 digit numbers that determine your quality of life no matter your status. Well earlier in 2018 I had a really bad credit score. I would

... More
Reply
3 hours ago

Lorna Seth

Words eludes me when I try to say thank you to Credit Specialist for fixing my credit and my gratitude towards him cannot be overemphasized. Credit Specialist is an excellent credit repair freelancer

... More
Reply
11 hours ago

FRANK BRADLY

Iâ??m Frank Bradly, my credit score was 431, I had negative items and late payments and i couldnâ??t get approved for a loan, a car, a houseâ?¦ NOTHING!
A few weeks later, my score suddenly shot

... More
Reply
12 hours ago

Angie Knox

With great joy in my heart Iâ??m happy to share my testimony. Last year I applied for a loan but I was disqualified due to my terrible Credit Report I online for a solution to my credit. My name is

... More
Reply
12 hours ago

Cassie Seth

My name is Cassie Seth. I have worked with Lexington law and other credit repair freelancers however, Trojan Virus bested them all. He really helped me understand how credit repair works when he

... More
Reply
22 hours ago

Fred Nathan

Hello everyone my name is Fred Nathan, I'm So happy I could come out of such a terrible experience during the holidays, I had five (5) negative items on my credit report with low credit score of 486.

... More
Reply
1 day ago

hardlow steve

Iâ??ve been working with Lexington Law for about 2 years but couldnâ??t see any positive result until I read some reviews aboutHACKWEST@WRITEME.COM and let me tell you I couldnâ??t be any happier

... More
Reply
1 day ago

Dave Callahan

I remember in 2017, my credit score was horrible, I had so many collection accounts and would not approve for anything. I had rental debt, charge offs, student loans, tax liens e.t.c. from your credit

... More
Reply
1 day ago

Johnny Taylor

I must acknowledge the tireless effort of Cole Credit Services, your commitment and dedication are greatly appreciated helping men and women with credit issues. I had a bad credit which disqualified

... More
Reply
2 days ago

victor rolland

I am Victor Roland, I live Boston MA. My most gratitude goes to Hack West Credit Repair. Few months ago, I needed help with my credit; I had nowhere to run to. My whole life was in shambles because my

... More
Reply
2 days ago

Sinclair Anderson

Many of us have been through it, because of mismanagement of our own finances, some because of family misfortune, or a combination of both, and we end up in a poor credit situation where there truly

... More
Reply
2 days ago

Alexander toney

Greeting my name is Alexander, Few weeks back I was trying to find someone who could get my credit fixed I had a 480 credit score medical Bills, a couple small credit cards, Collections, liens etc. I

... More
Reply
2 days ago

Young Giggs

Helping people manage their credit score to get it fix at the right time won't cost cyberspacehacker2gmail.com less than 2 to 4 business days when you get in touch with him or you really want to

... More
Reply
2 days ago

James Lawson

Hello Guys before working with COLEFRANKSERVICES I had a credit score of 531 to 542. I went looking for a loan from Metro Credit Union and they told me to pay my debt to Bank of America first which

... More
Reply
3 days ago

Jay Clark

Hack West Credit Repair is an awesome company and offers very good services! All my negative items are gone within 9 days from my credit reports. Hack West helped me deleted all the errors from my

... More
Reply
3 days ago

Internet Don

Do you have a bad credit report? I can help you increase your credit score in 5 days. I can remove stuffs from any credit bureau. I can make late payments on Trans union, Equifax and Experian. Contact

... More
Reply
3 days ago

Randy Gladden

My credit has been down for a long time. A number of accounts in collection status. And, for a long time, I've put off doing anything about it. 3 weeks ago, after seeing numerous posts about

... More
Reply
3 days ago

Lucy Cole

Started repairing my credit 2 weeks ago, and already my score has jumped from 546 to a high 790..Trust me, you wonâ??t get results like this doing it yourself fast track your results with

... More
Reply
4 days ago

Jamie McCarthy

Am not a fan of this sort of thing but after nearly been scammed, i finally met a professional hacker that can change your grades, get you a citizenship permit, wire funds, hack email or social media

... More
Reply
4 days ago

Greg Ransom

However, there are many services that might try to take advantage of you and your financial needs by trying to steal your money or financial information not this guy. Iâ??m GREG, I live in Tennessee.

... 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