How to Purchase A Home with a Bad Credit Score

Those who want to purchase a home with a bad credit score often feel like they have few options. Your credit score rises and falls based on how much debt you have in relation to your credit and the payments that you made in the past. A foreclosure or a bankruptcy can drop your score, but your score can also drop because of unpaid medical bills or old debts. Even if you have a significantly low score, you may still have options when it comes to buying a home.

What is a Bad Credit Score?

There are three major credit reporting agencies that are responsible for tracking your credit and determining your credit score. The lowest possible score that you can have is around 300, but you can also have a score above 800. As long as you borrowed money and made payments in the past, you should have a score above 300. A bad credit score is usually one in the low 500s to the low 600s. Those with a score above 700 have good credit, and a score above 800 indicates perfect or excellent credit.

Improving Your Credit Score

If you want to purchase a home with a bad credit score, you might try improving your score. An increase of just a few points can help you reach a better interest rate bracket. Paying down your debt and increasing your debt to credit ratio is one of the best ways to improve your score. Make sure that you request copies of your credit report, look over the report and contact the bureaus with any errors you find. Removing even one or two old debts from your credit report can significantly improve your score.

Changing Your Down Payment

U.S. News & World Report recommends that those with poor credit or a bad credit score change the size of their down payments. A down payment is an amount that you can afford to put down when you purchase a home. The more money you put down, the less money you need to borrow. Making a larger down payment can show a lender that you need less financing, which might make you a lower risk. Putting down five percent or ten percent rather than 3.5 percent can result in a better loan for you.

Look for Alternative Programs

When looking at ways to purchase a home with a bad credit score, try looking at alternative loan programs. The Federal Housing Administration can guarantee your loan with a lender, but you must have a score in the 500 to qualify for this program. If you default on your home loan, the FHA will take over the loan and foreclose on your house. The United States Department of Housing and Urban Development has programs in place for first time home buyers and those who work as police officers, paramedics and in other positions that support the community. These programs often have fewer restrictions and requirements than other loan programs do.

Buying a home with a lower credit score is harder than buying a home with a higher credit score. Even if you have bad credit, you can still buy a house. If you want to purchase a home with a bad credit score, try improving your credit score, putting down more money and looking for alternative loan programs.

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