The first step to buying a home is figuring out how much you can afford, often through things like a house payment calculator.
After that you’ll want to shop around for a lender to give you a loan.
Lenders look at many things when they are considering you for a mortgage loan. They do a financial deep dive that includes calculating your debt-to-income ratio, assets, steady income, and credit score.
Credit scores can be tricky. Even if you are currently financially stable it may take a while for your score to catch up.
The lower your score, the harder it will be to find a lender for a loan. Lenders look for a score of 620 at minimum, while lenders who have excellent interest rates like to see a score of 740 or higher.
So, what do you do if your credit does not meet these thresholds?
Go outside the bank.
There are non-bank and online entities that are legitimate and can be your lender. Do your research to find out who has the best reviews, then see what they have to offer in terms of rates.
Get a co-signer.
Ask a trusted family member or friend with better credit to co-sign your mortgage as it will help boost your application.
Seek down payment assistance.
These programs exist nationwide and help boost a down payment to compensate for your low credit score situation.
These programs can be given by state and local governments, charitable organizations, or mortgage lenders.
Seek out mortgages built for bad credit.
There are two mortgage options that help folks with bad credit: the FHA loan and the VA loan.
Federal Housing Administration loans are made for borrowers who do not qualify for a conventional home thanks to low credit score or lack of large down payment.
Scores as low as 580 and down payments as little as 3.5 percent can quality for an FHA loan.
VA loans are insured by the Department of Veterans Affairs. Retired military personnel or those in active duty qualify for this type of loan.
With these loans you do not have to make a down payment.
USDA loans are backed by the Department of Agriculture and available for low income borrowers looking to purchase a property in a designated area. These loans also have no down payments.
Save for a big down payment.
If you have a chunk of money on the larger side to put down on your home, that may help get a loan. Lenders tend to see people who can put a big down payment down as folks who are less likely to default on a loan.
Build your savings as well so when lenders go through your finances they see you have extra money outside that you’ve put aside for a home.
Don’t make big purchases.
Contrary to what you may think, a big purchase like a car or opening a new credit card can negatively affect your credit score initially. It will take you longer to build it back up.
