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How to Buy a Home with Bad Credit

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There are ways to buy a home with bad credit.

As much as we would like to acquire a property, bad debts, a low credit score, and a low income may prevent us from doing so.

Luckily, there are available home loans for low income and bad credit applicants.

You just need to look for programs for buying a home with bad credit to make your dream home yours.

You can still increase your chances of getting a home loan approved even with bad credit.

Learn How to Buy a Home with Bad Credit in 6 Ways

How to Buy a Home with Bad Credit

1. Save for your down payment

Credit scores below 580 will require you to pay a larger down payment.

As much as we hate it, our credit score says a lot about our cash flow.

Even if you are already earning more than you used to, your low credit score may remain below the average.

To acquire a home loan, you should save for at least 20% of the property’s retail price, or even more, to compensate for your low credit score.

Being able to do so gives your lender an assurance you can pay for the loan even with a bad credit history.

The higher your initial investment to a property is, the more likely you will be paying for it in full.

This is a good point for your creditor.

2. Applying for a Federal Housing Administration Loan

FHA Loans provide low and moderate-income home buyers services and financial programs that may help them acquire a property.

However, this type of housing loan requires a credit score no less than 620, if not a good or perfect credit score.

FHA loans can cover borrowers with credit scores above 580, but with higher down payment amounts.

This ranges from 3.5% or more of the total value of your target property.

Interest fees under the FHA loans program are considerably higher compared to private housing loans.

3. Improve Your Credit Score

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There are several ways on how to improve your credit score.

The first step would be to analyze items written on your credit report.

From here, you can determine items that have been wrongly reported on your credit.

You can ask for a petition to remove or revise any wrong information included in your credit report.

Be ready to provide receipts, contracts and other documents proving your claims.

From here, your credit score will be restructured.

You’ll have an improved credit score which will help you to qualify for a housing loan afterward.

4. Improving Your Credit History

One of the ways on how to buy a home with bad credit is keeping your credit accounts current.

Although it doesn’t mean you’re improving your credit score, it shows positive changes in your credit history.

Try to increase your cash reserves, pay your debts on time and improve your income for 6 months or more prior to a housing loan application.

Your credit score may remain the same, but lenders will notice how eager and responsible you are in paying for your financial obligations.

The chances of this  on getting a housing loan approved depends on your dedication in paying your lenders.

Make contact with your lenders to negotiate on how to get back to current.

Creditors can re-age your account to remove the delinquent remark.

However, you need to negotiate and talk to them to qualify.

5. Get a private mortgage

You can still acquire a property you want through private mortgages.

Private mortgages are debts funded by a friend, family member or a private lending company.

The terms of payment depend on what you and the other party agree to follow.

The downside to this option is you will most likely be paying a high interest rate.

Private mortgages from family members might trigger possible misunderstandings in the future.

This is the least practical way on how to buy a home with bad credit.

6. Use a lease

Leasing a home you intend to buy is like a rent-to-own program.

You pay monthly fees while using the property with the option to buy it at the end of the lease contract.

This is also a helpful option if you would want to improve your credit score, but want to move into the property at the same time.

Although you might not end up buying the property you lease, this option buys you time to decide whether to renew the lease, buy the property, or move to a different property.

Eddie Miller shares tips on how to buy a home with bad credit in this video:

Your credit score and credit history may limit you from buying your dream home.

However, this does not completely prevent you from attempting to do so.

Improving your credit score, credit history, and keeping current with your financial obligations, despite the bad credit history you had is a plus point for your creditors.

Tried any of the options for buying a home above? We would love to hear your stories in our comments section.

You can improve your credit score to qualify for the home loan you desire. Read tips from this article on How to Improve Your Credit Score in 10 Easy Steps.