A Brief Guide on Buying Real Estate with Low Credit Scores 

 December 4, 2021

Purchasing real estate for living isn’t a problem at all. It holds true for most loan applicants with a high credit score which is above 700. For those whose credit reputation is far from being good, it might be a real challenge, as there’s a strong chance applicant won’t get approved for a mortgage. 

As the best resume writing services can skillfully turn gaps and dark spots in your work history into a winning resume, the same is with real estate agents who are sure that buying a house with bad credit is the easy bit. 

This article reveals recommendations and insider tips from real estate agents on how to achieve your goal if high mortgage rates don’t frighten you.

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Table of Contents

Getting Know Your Opportunities

If you buy a home for the first time, you can take part in special programs helpful for taking a loan. The problem is that the economic crisis, numerous job losses, and squeeze on incomes caused by the COVID-19 have made mortgage lenders play it safe by putting the screws to requirements. The credit score numbers below are helpful for understanding what the minimum credit scores should be:

Poor Credit Scores

In theory, you can qualify for a mortgage with the lowest possible score which is within 500 – 579. But consider the fact you’ll get inevitable limitations to a loan size insured by the Federal Housing Administration (FHA). A down payment of at least 10% for an FHA loan is necessary in this case. The request to pay off all outstanding collections and judgments from the lender shouldn’t be a surprise for you as well. 

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Fair Credit Scores

Though credit score numbers within 580 – 619 are still far from ideal, here you can consider FHA loans with a down payment as low as 3.5% or some other government-backed ones. For instance, if you are a serviceman or a veteran, you may get your loans guaranteed by the Department of Veterans Affairs. 

Fairly Good Credit Scores

A score lying within 620 – 699 provides you with good odds of getting the most common type of home loan — a conforming mortgage that isn’t backed by a government agency like the FHA or VA. Within the higher range of your credit scores, your opportunities increase too.

Good & Excellent Credit Scores

The applicants with good (700<), very good (800<), or exceptional (850<) credit reputation get access to just about any mortgage loan they want. A high credit score increases the odds that lenders will be eager to extend credit and provide lower rates. 

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A Guide on Buying a House with Bad Credit

Though some lenders may want an above-average score from potential buyers, there will be some with minimum or no credit score requirements. As soon as you find the suitable variant, take the following steps to start the process of purchasing a house. 

#1. Getting the credit report copy

On AnnualCreditReport.com you are entitled to a free annual credit report from each of the three credit reporting agencies — Equifax, Experian, and TransUnion. With the credit report that features your payment history and details of being filed for bankruptcy, you can better understand what can affect your credit score. As soon as you figure out the factors for any issues you can take precautions to boost your score. 

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#2. Consulting a HUD-approved agency

For a better understanding of all ins and outs of the buying process consult with a housing counselor from a reputable agency before making a final decision. You can get a free or low-cost expert piece of advice about lending options, right closing procedures, and ways your credit score can factor in. You can reach your state HUD-approved housing counseling on HUD.gov.

#3. Scratching up an initial payment

Making a down payment is the best demonstration of being serious about your intention to invest in purchasing a house. The worse your credit is, the larger amount should be set aside for getting a better mortgage rate. You can come across mortgages that accept down payments of 3%, but you should choose higher ones. 

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#4. Reviewing the budget

You should have both feet on the ground about how much you can afford for managing the housing costs. Aside from the mortgage, there will be extra costs, including taxes, insurance, home maintenance costs, HOA, and closing fees. Don’t forget to worry about leaving money for moving. A housing counselor can give you a clue about estimated costs.

#5. Applying for the lowest loan rates

The credit score numbers don’t mean buyers with lower credit scores are automatically excluded from homeownership, but such the mortgage will likely come with a higher interest rate. You need to shop around and check the credit requirements of lenders you’re considering. Your mortgage broker or housing counselor can explain your options and help to find a more flexible lender.

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#6. Finding ways to improve the credit score

In cases when your loan doesn’t get approved, the best idea is to take steps to become trustworthy. Revise all issues with your credit report once more and try to rebuild it. Be wise to decrease the debt-to-income ratio by increasing your holdings and getting all debts paid off. 

Though you may have to shop around more than usual to find a lender willing to accept low credit scores, don’t stop keeping your eyes on the prize of becoming a homeowner. Your bank may provide you with special monitoring tools to keep track of your credit score and figure out when it’s high time to apply for a loan. 

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