How To Prepare To Buy Your First Home With Bad Credit

Pay down the balances on your credit cards to less than 30 of the credit limit.

How to prepare to buy your first home with bad credit. When your fico credit score the score lenders evaluate when deciding to loan you money is below what s acceptable to conventional lenders one popular option is to apply for u s. If you re a first time home buyer or haven t purchased a home in the last 3 years you could qualify for this loan. The ratio of the balance on your credit cards compared to the credit limit is called your credit utilization ratio. The minimum credit score needed to get an fha loan is usually around a 580. Clean up your credit report.

Of course there s your down payment typically between 3 5 and 20 of the purchase price. Federal housing administration fha loan insurance. Thankfully there are a few things you can do to help keep the home buying process a pleasant one even with bad credit. Your credit score goes up if you have different types of credit card accounts e g credit cards store credit cards car college loans and more. The fha helps people qualify for loans by assuming the risk if the borrower that s you defaults.

In addition to making sure your credit score is in order you ll also want to consider the cash you ll need to make buying your first home a reality. If you have bad credit but you want to buy a home start by getting pre qualified for a loan with the federal housing administration who are more likely to forgive bad credit than other lenders and allow down payments as low as 3 5 of your original loan. If you need to open additional tradelines warren suggests getting a major credit card like a visa or a mastercard not a store credit card at least six months before you apply for a mortgage and using it for items you would buy anyway. Options exist that can help first time home buyers boost their credit scores find a lender and even save up a good down payment. Never charge more than 30 percent of your allowed limit and pay it off in full every time you get your bill she adds.

These costs add up quickly and if you are not financially prepared you may end up in a bad position. A down payment of at least 3 5 of the home s purchase price if you have a 580 credit score a down payment of at least 10 if you have a credit score of 500 579 extra money to cover mortgage insurance anytime someone puts down less than 20 on the purchase of a home the lender will add private mortgage insurance pmi. However if you can make a 10 down payment you can probably get approved with a credit score between 500 579.