Home ownership is a dream for many Americans, but poor credit can often thwart that dream. Sometimes you want to buy a home, but you have a bankruptcy in your past or you have a previous foreclosure or your credit is littered with late payments and collections.
While it is more difficult to buy a home with bad credit, it is possible. Here’s a look at some of the challenges you face when you’re wondering how to buy a home with bad credit, as well as some of the options you can use.
The Challenges of Bad Credit
Lenders are always concerned with risk. If you’re perceived to be a low-risk buyer, you will receive the best possible rates. If you’re perceived to be a high-risk buyer, you will get less-attractive rates — if you have lending available to you at all.
The greatest snapshot of your risk is your credit score. The higher your credit score, the lower your perceived risk, and the lower your credit score, the higher your perceived risk. Great credit scores run from about 740 all the way up to the low 800s. Poor credit scores are typically 650 and lower into the 500s.
Lenders look at other factors, too, including credit depth. If you’re a young adult and you’re looking to buy your first home, you may run into the challenge of not having enough credit. That is, when a lender looks at your borrowing past, there isn’t much to see. It’s not that you have poor credit necessarily. It’s that you just don’t have enough to make an informed decision. In these situations, you may find yourself with less than the best interest rates.
Can I Buy a Home With Bad Credit?
It’s not all bad news if you have poor or limited credit history. The Federal Housing Administration makes available loans to first-time buyers that have far less stringent requirements than you would find when securing a loan from a bank or credit union. There’s also the HOPE program, which is designed to serve borrowers with poor credit history.
You can even find lending from more traditional sources in some cases. You may pay higher interest rates, and the lender may require a larger down payment than they would from borrowers with better credit history, but you won’t be outright rejected.
The first step when borrowing is to understand what you’re dealing with in credit terms. Pull a free credit report and see what the lenders are seeing. You may find you have outstanding debts you didn’t even know about. Taking care of some of these debts can help improve your score over time and lead to more borrowing options.
Contact us at CENTURY 21 Core Partners
We’re not lenders at CENTURY 21 Core Partners, but we are real estate experts who can connect you with the best lenders in York, PA. We can walk alongside you as you explore your options, and we can be creative in helping you find the best home for you and your family — no matter your credit history.