Last Updated on February 6, 2019 by Luke Feldbrugge
Do you want to buy a house but you’re worried that you can’t get a home loan? Don’t worry; you do not need spotless credit to buy a house. There are numerous bad credit loans available for those who qualify, and these loans are not scams but valid and great options if you qualify. Read on for information about how you can be eligible for a home loan with less than perfect credit, along with some tips on improving your credit score.
Why Does Your Credit History Matter?
Did you know that lenders use a number, known as a credit score, to decide how risky it is to loan you money? Lenders covet borrowers with high credit scores, and they use perks such as low-interest rates and discounts on loan fees to compete for their business.
A lender finds out about your credit score by requesting a copy of your credit report from one of the big credit reporting bureaus, Experian, Equifax, and TransUnion. The credit reporting agencies compile your credit history and assign a credit score that reflects how strong your credit risk is at the moment in time.
The most common credit score is called a FICO score. A credit reporting agency, like Experian, calculates your FICO score by analyzing information from:
- Payment history
- Overall debt
- Kinds of credit (ex. Car loan, credit card, mortgage)
- Length of credit history
- New credit
FICO scores range from 300 to 850. Lenders reward borrowers with scores above 740 with the lowest interest rates. Borrowers who present a score between 670 and 739 have little trouble finding great home loans. Lenders worry that individuals with a FICO score below 670 may not pay their mortgage payments on time, and so they often attach a higher interest rate to those home loans.
Do Lenders Only Care About Credit Scores?
No. Fortunately, lenders do look at more than just your credit score when considering you for a home loan. They also take into consideration other essential factors such as your salary and any extra funds that you may receive from sources like child support and alimony.
It’s also beneficial if you have stable employment. A letter from your employer to your lender stating that you are highly likely to still have your job a year from now can reassure the lender that you’re a decent credit risk.
Lenders also smile if you have some money set aside to take care of unforeseen expenses. Setting aside a little cash each month is a great way to prepare for unexpected financial challenges.
What Are Some Examples of Credible, Bad Credit Loans?
There are a variety of home loan options available to borrowers who qualify. It’s important to work with an expert lender to explore all the possible home financing options.
Homes for Heroes works with affiliated lending specialists throughout the United States to make sure that Heroes can buy houses. The lending specialists use their expertise to search for the optimal home loan for each client. As a bonus, the lending specialists offer reduced loan fees to Heroes. SIGN UP for a referral to a Homes for Heroes affiliated lending specialist in your area.
Some possible home loan options include:
- FHA- the Federal Housing Authority backs these loans and offers loans for as little as 3.5% down payment to those who qualify. FHA loans are available for borrowers with very low FICO scores if they can pay more money for a down payment.
- VA- The Department of Veterans Affairs provides outstanding loan opportunities to active duty military, veterans, and the surviving spouses of former service members. These loans do not require any down payment and are easy to qualify for with a credit score of at least 620. However, it is possible to qualify for a VA loan with a credit score below 620 under certain circumstances.
- Fannie Mae and Freddie Mac- These federal government loan programs are designed to support homeownership for low and moderate income individuals. A significant benefit to obtaining Fannie Mae and Freddie Mac home loans is that they do not require a substantial down payment. Generally, lenders require a minimum FICO score of 620 to qualify for one of these home loans.
Can You Improve Your Credit Score?
The critical thing to remember if you’re unhappy with your current credit score is that you can raise it. Websites such as Credit Strong show you the easiest tips and tricks for raising your credit score, regardless of whether you’re a credit card owner or not. After all, a credit score is just a reflection of your credit history at the moment in time. Here are some tips to make your credit score soar:
Pay Down Credit Card Balances
Do you cringe when you open your credit card statement and look at the balance each month? You’re not alone. Americans owe nearly a trillion dollars in credit card debt and, of the families who carry credit card debt, the typical family owes over $15,000. Still, as hard as it is to pay down your credit card debt, you’ll see significant progress on improving your credit score when you start to tackle your credit card balances.
Make Payments on Time
Do you sometimes pay your bills a little late? Have you skipped a payment for a month? Unfortunately, not paying your bills on time hurts your credit score. Commit to paying your bills on time to polish your credit history.
No New Credit
Unless you do not have enough credit, do not use credit to make any purchases before you close on your new house.
Check Credit Report
The credit reporting bureaus make lots of mistakes. Many credit reports contain errors that unfairly lower credit scores. Get a copy of your credit report from either Experian, Equifax, or TransUnion and scrutinize it for any mistakes. If you find any errors, inform the credit reporting bureau right away.
Lastly, don’t let some financial miscues keep you from buying a home. There are home loans available for borrowers with less than perfect credit. SIGN UP to speak with a Homes for Heroes real estate specialist today. We’ll refer you to an experienced affiliated lending specialist in your area who will work with you to find exceptional home financing opportunities that make homeownership possible.