How to Buy a House With a Low Credit Score
Your credit score is an important factor in you obtaining financing for a home. If your score is low, many mortgage lenders will not approve you for financing. If you can't be approved through a traditional lender, there are other options available to you to buy a home. Research these options and choose the option that is best for you.
Obtain your credit report. You must be aware of your actual credit score to know what your loan options will be. Fix any errors that may be present, such as collection items still present past the seven-year period. If there are any errors, contact the credit reporting agency and request they be removed since errors can have an effect on your credit score by as much as 100 points.
Find a government lender. Once you know your actual score, even if it is low, you can still find a lender. Inquire about FHA, VA or USDA loans. Using these types of government loans, you may get approved even with a low score. Your down-payment may be 3.5 percent of the loan amount. The disadvantage to these types of loans is that you may be limited in the amount
that you can borrow.
Find a low credit score loan. Research lenders that provide loans to those with low credit scores. You may obtain financing, but the disadvantage is that you are required to secure a large down payment or you will have a high interest rate. If you decide to use this type of financing, research the lender through the Better Business Bureau. Inquire as to whether there have been any complaints filed from any other consumers against the lender.
Use seller financing. Ask the seller of the home if he offers seller financing, If you use seller financing, you will pay the seller directly and avoid being approved through a traditional lender. You can even lease with the option to buy the home. In many cases, you may not be required to have a large down-payment and you would simply take over the payments. The disadvantage to this option is that if you decide to move, the home still belongs to the seller, so you don't own any interest in the home.
Tips and Warnings
- If you consider a government loan, compare the different features, since not all government loans are the same.