While commercial lenders typically restrict who can qualify for a home loan, based partly on credit scores, having bad credit doesn’t necessarily bar you from owning a home. In fact, it’s becoming easier than ever before for people with bad credit to qualify for home loans. Before you give up on your homeownership dreams, explore some of these options to see if they’re right for you.
First, Inspect Your Credit Report
Don’t just accept that you have bad credit and that there’s nothing you can do about it. Take a good look at your credit report and see if you can spot any errors. Mistakes in credit reporting are more common than people realize, and they can significantly impact your credit rating. If you spot any errors, get them corrected right away and see how that affects your score. Your credit score may even improve enough to qualify you for a same day loan approval San Diego CA.
Low Credit Score Home Loans
Even with a lower credit score, you may still qualify for a loan from a commercial bank. Many traditional lenders offer home loan programs for people with low credit scores but be aware that you’ll be paying a higher interest rate. This means you’ll be paying more in interest each month, but it will get you into your first home. Later, after you’ve been paying on your mortgage for a few years and you’ve built equity in your home, you may be able to refinance at a lower rate.
Take Advantage of Government Programs
The most popular program is the Federal Housing Authority (FHA) loan program, which helps people with poor credit scores qualify for a loan. Additionally, they allow lower down payments of just 3.5% of the home value. It’s important to understand that a lower down payment does mean a larger mortgage, which means you’ll be making larger monthly payments. Again, once you build equity in your home and improve your credit score, you may be able to refinance and get a better deal.
Another program worth looking into is offered by the USDA and concerns loans for homes in rural areas. The USDA program has income requirements that you must meet to qualify, but, once you have been approved, you won’t have to make a down payment at all. The program is designed to help families in extreme need, who lack adequate rural housing. While not supplying a down payment can help you in reducing upfront costs, it means borrowing more on the loan.
These are the most common ways for individuals and families with bad credit to get a home loan. Even paying more on interest and accepting the consequences of a lower down payment may be worth it, if it means owning your home. A home loan can also help you improve your credit score over time, as long as you keep up with your monthly payments. In the future, a better credit profile can help you refinance or qualify for other financial products, such as a home equity line of credit or a student loan to continue your education.