The single most influential factor in determining your approval for a loan is your credit history. If you have other revolving credit accounts that are in good standing -- and maintain a low debt-to-credit ratio -- lenders will view you as being a good candidate. Not only does this increase your chances of getting a loan, but it may also help you secure better terms, such as a low interest rate. But what if you're looking to purchase a home and your credit is less than stellar. Let's take a look at how to buy a home with bad credit?
How to Buy a Home with Bad Credit
YES, You Can Buy a Home with Bad Credit
The good news is that you can buy a home with bad credit. Granted, it's going to be more difficult, and you'll probably have to make a larger down payment, but there are lenders who are willing to work with you.
Credit is only one factor that banks look at when applying for a mortgage. While it holds the most weight, another influential factor is your income. If you've held a stable job with a solid income for five or more years, the bank will take this into consideration. Maybe you fell on hard times a while back and were forced to default on some credit cards. Since you've held a good job, however, the bank may offer you a mortgage. This is why it's important to nurture your job and keep your income flowing when seeking a mortgage.
Consider an FHA Loan
If you have bad credit, you may want to consider a Federal Housing Administration (FHA) loan. When compared to traditional loans (Fannie May and Freddie Mac), FHA loans are more lenient towards borrowers with bad credit. The Department of Housing and Urban Development (HUD), which manages the FHA loan program, says that borrowers can obtain an FHA loan with just a 580 credit score, assuming they make a down payment of 3.5% or more. The downside to FHA loans, however, is that they tend to come with higher fees.
Make a Bigger Down Payment
As stated above, borrowers with bad credit typically have to make bigger down payments when securing a mortgage. Data from RealtyTrac suggests that the average down payment for homes purchased in 2015 was just under 15%. Ideally, you should put down at least 20% if you have bad credit. Not only does this increase your chances of getting approved, it also lowers your monthly mortgage payments.
This article was brought to you by Premier Island Properties - A full service real estate firm serving Hilton Head Island and Bluffton, South Carolina. For more real estate news, information, and interesting facts about the Lowcountry, please visit our website.
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