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how to buy a house with bad credit

How to Buy a House with Bad Credit: 4 Tips From the Experts

Every day, in every corner of the country, there are people attempting to buy a house with poor, and sometimes, bad credit history. And like all of the other homebuyers doing battle in the highly competitive real estate market, these people are trying to perform a balancing act of finding the right home and finding out how to get approved for a home mortgage loan.

This process can be tricky—especially if you’re credit is in rough shape. Homebuyers with bad credit must overcome certain challenges when trying to qualify for a mortgage. It’s also not rare for a first time homebuyer with bad credit to get declined for a mortgage either.

If your credit is suffering, use the 4 tips below to learn how you can take advantage of the many resources available to homebuyers and triage your credit to ensure your home mortgage loan application gets approved once you find the perfect home.

How to Find and Buy a House with Bad Credit

Create a List

The first thing you should do is build a list of homes you like and could potentially see yourself buying. The reason you shouldn’t settle on just one house is that your lack of credit worthiness may prevent you from purchasing the house of your dreams. While it’s still important to keep your dream house on your list, be sure to include other options as well. Good sources for affordable home options include:

  • A local realtor should have great insight on all of the deals available on the marketplace. Ask friends, family, coworkers and colleagues for referrals.
  • The U.S. Department of Housing and Urban Development (HUD) also features homes for sale that have been foreclosed on at market value.
  • Your State Housing Authority will often offer access to property listings.
  • Board of Realtors, like the Seacoast Board of Realtors, can serve as a great starting point to find area experts with knowledge of the local real estate market.

Build Up a War Chest

This very important step can actually be tackled in concert with your search for a new home. Saving can, and should be done at every point in your home search. Saving for a down payment is important because it:

  • Satisfies the terms of your mortgage—think of it as a large good faith payment to lenders
  • Impacts the amount of your monthly mortgage payment
  • Dictates whether you need private mortgage insurance or not

Most traditional loan programs require a down payment of 10 to 20 percent of the loan’s price. The key is to come up with as much as you can. This shows lenders you’re serious about buying a home. Another good reason to save money is for the inevitable closing costs that will occur. For those who have trouble saving, the Federal Housing Authority offers special loans to help both low- and moderate-income families purchase housing.

Download our free eBook here on how to get a mortgage after a bankruptcy

Fix Your Credit

Similar to saving for a down payment, working on your credit is something you should always be doing—especially if you already know you’re credit is in rough shape. Bad credit is one of the most common reasons people get declined for a home mortgage loan. Luckily, there are many ways to repair your credit before securing a home loan. These repair tips include:

  • Try to keep your credit card debts below 40% of the maximum allowed.
  • Keep inquires down related to credit applications or credit checks.
  • If you were late, contact your lender and ask for “one time forgiveness.” Most lenders/creditors have a policy were they will remove it – “once.”

In addition to repairing your credit, it’s also important to be vigilant when it comes to your spending. Believe it or not, there are many pitfalls a homebuyer can make prior to getting approved for a home mortgage loan.

For instance, don’t open up any new credit cards, don’t close any accounts and certainly don’t go out and buy a new car or flat screen television. Most importantly, keep track of your credit. Understand it and then improve it. Once your credit score can secure you a loan, don’t stop working to improve it. You may be able to refinance for an even lower interest rate.

Find the Perfect Team

It’s critical to have everyone on the same page when shopping for a home and working towards a home mortgage loan. Having a realtor who understands your financial situation and can work with your broker is crucial. The same can be said for your mortgage broker. Together these two roles are imperative to you getting the house you want, at a price you can afford. Teamwork between your mortgage broker and realtor is key.

Following these four tips can put you in a great position to get a home mortgage loan, even if your credit is poor. Remember, you’re not the only one with bad credit trying to buy a house these days.

With over 150 years of collective mortgage experience, the team at Blue Water Mortgage has seen numerous homebuyers who possess less than stellar credit get a home mortgage loan. Our team of loan officers are ready to help you. Contact us today.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.