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Buying Your First Home with Bad Credit

March 9, 2022

Woman Buying Her First Home with Bad Credit

If you’re considering buying your first home, and your credit isn’t so hot – you may have some challenges to overcome. But that doesn’t mean buying a home with bad credit is impossible.

Since credit scores can range from the 300s to over 800, what’s “bad credit” to you might not really be that bad. Read on to discover the basics of where you need to be credit-wise to get your foot in the door and buy your first home.

Home Buying Budget

First, consider if purchasing a home is suitable for your financial situation. Owning a home can be a lot of pressure with costs like homeowners’ insurance, repairs, and property taxes. These are expenses you don’t have when you’re a renter.

Do you have extra money at the end of the month, or are you struggling to make ends meet? If you’re struggling, the first step will most likely be increasing your income and paying down debts.

But you don’t want to wait too long. That’s because rates are good, and real estate prices are rising. Plus, as a renter, you’re probably seeing your rent increase each year.

Credit Score Requirements

Let’s cut to the chase. You’ll need a score of at least 580 to play. 620 is even better. But with 580, it’s possible to get a government loan – like an FHA, USDA, or VA loan. Many first-time homebuyers start with an FHA and later refinance to a better loan once they’ve improved their credit.

To get a conventional mortgage loan, you need a credit score of at least 650. Many first-time homebuyers whose FICO scores are unacceptable to conventional lenders can get an FHA home loan.

While you must demonstrate current financial responsibility, past bankruptcy or foreclosure won’t automatically disqualify you from getting a loan.

Consider a Co-Signer

First-time homebuyers often have a family member help by co-signing on a loan. While reducing the risk to the lender, it also helps you get into a home and start building equity as soon as possible.

Once you’ve improved your credit, you could refinance and get the co-signer off the loan as long as your income is stable.

Credit Bureaus & Scores

The best way to start the process of buying a house is to get a copy of your credit report. Doing that will show you where you stand – and what you need to do to qualify.

You’ll also see what you need to repair on your credit report. For example, if there are errors like wrong addresses or loans showing that you’ve already paid off.

A lower FICO score means less attractive mortgage rates and fewer options for loan programs.

When to Contact a Lender?

It’s a good idea to contact Homestead as soon as you’re considering purchasing a home. Our job is to get you from where you are to where you need to be.

We’ll work to get you approved. The first thing we’ll do is look at your credit and go from there. And don’t be nervous to reach out. We talk with borrowers every day who never thought they’d be homeowners and get them into their own homes.

Homestead Financial Mortgage’s low-interest home loans are some of the best in the states we serve. We’re licensed in Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Missouri, Montana, Ohio, Oklahoma, Tennessee, Texas, and Wisconsin.

Contact us today to learn more about the home loan products we offer that are right for you.

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