Can You Buy or Refinance a Home With a Bad Credit Score?
Housing is one of life’s most basic necessities, but qualifying to buy a house isn’t as easy as it may seem. One of the first things a mortgage lender looks at is your credit score — a numeric representation that shows how reliable you are at paying your bills.
One of the first things prospective homebuyers ask us is, “Can you buy a house with bad credit?” It’s logical to worry that you won’t be able to get into a home due to a poor credit report, but this doesn’t entirely disqualify you from homeownership — or from refinancing a mortgage with bad credit, for that matter.
Credit Requirements for Homeownership
First of all, it’s important to understand the credit expectation you need to meet before you apply for a home loan. If your credit score is in the low range (around 500 to 579), the Federal Housing Administration (FHA) will give you a loan if you can provide a 10% down payment. That down payment requirement drops to 3.5% if you’re in the range of 580 and 619. Anything above that is considered a decent score and will open up more mortgage possibilities for you.
Here are several ways you can become a homeowner even if your score is below 619.
How to Buy a Home With Bad Credit
Check Your Credit Report for Mistakes
There’s always a possibility that your credit isn’t as bad as your credit report says it is. For example, credit accounts sometimes get reported twice to the same bureau and show up multiple times on your report, dinging your credit. If you have a name similar to a family member, their lines of credit could mistakenly get added to your report. You may even have fraudulent accounts on your report if you’ve ever been the victim of identity theft.
These are just a few of the mistakes you could find on your report. If you find this to be the case, you can contact the credit bureau and file a dispute.
Apply for a Mortgage Through the FHA
The Federal Housing Administration is a government agency that aims to make homeownership possible for a wider range of people. Their loans have lower credit requirements — although, as mentioned earlier, they do require a sizable down payment for lower scores, and you will be required to have private mortgage insurance, which adds onto your monthly payment amounts.
Be Prepared to Pay More in Interest
In order to protect themselves from late or delinquent payments, lenders will allow you to borrow from them under the condition that you accept a higher interest rate, which will increase your monthly payment amount. If you’re willing to take on the higher interest rate, homeownership becomes a more realistic possibility for you and your family.
Fix Your Credit
For people with especially low credit scores, improving their finances may be the only option. Fortunately, it doesn’t take long for a credit score to go up once you start paying off collections, lowering account balances, making payments on time, and diversifying your credit. A good credit score will give you more loan options and help you get a better deal on your home.
How to Refinance With a Low Credit Score
Apply for an FHA Streamline Refinance
If your mortgage loan is backed by the FHA, you can apply for their FHA Streamline Refinance program and get a lower rate. Under this program, homeowners can refinance even if they are upside down on their loans without the need for a full credit check — as long as you’ve paid your mortgage on time for a year. There’s no appraisal needed, and the documentation required is minimal.
Apply for a Refinance With a Cosigner
If you can find someone with good credit who doesn’t reside with you but will take responsibility for your mortgage payments in case of default, this person’s credit score will be taken into account in determining your new interest rate.
Ask Loan Remedy About Other Low-Credit Financing Solutions
Loan Remedy is on a mission to help people like you not only find and qualify for mortgage loans but also to make sure you love your mortgage. Our sophisticated solutions enable us to match you with the best fit for your financial circumstances. If you have further questions about qualifying for a loan with poor credit, contact our team. We’re eager to help you get on the track to homeownership.