Almost everything you read about getting a mortgage advises that the first step is to build your credit. Often, this is a process that takes at least a couple of years; time that not everyone has. Whether you’re trying to buy a home for your new family, striving to get some stability in your life, or just want to stop throwing your money away on rent, buying a home is something that everyone can achieve. The good news is, you don’t have to wait until your credit is great or even good. There are options available to you, even if you have poor credit.
Hard Money Financing
Hard money lenders charge more interest than the going rates. They do that because they lend based on the asset and on income verification, not your credit score. To qualify for a loan like this, you do need to have liquid assets in reserve. Hard money lenders usually require 50% down and will want to see that you have money saved up in the bank. Note that hard money loans are not a long-term plan due to the high interest charged. You’ll want to build your credit and refinance into a better interest rate as soon as you can.
Find a Co-Signer
If you have a close friend or family member with good credit, consider asking if they’ll co-sign your loan. This is a big ask, since their credit will be hit if you miss your payments. If you default entirely, they’ll be responsible to pay off your debt. If you go this route, be sure to ask the right person and, most importantly, live up to your part of the bargain.
Search For Bad Credit Home Loans
There are a handful of programs to help people like you to buy a home. If you can just get your credit score to 580, you could qualify for an FHA or USDA loan with very little or no money down. If you’re a vet, there are VA loans with zero down requirements. The Freddie Mac Home Possible program and the Fannie Mae HomeReady mortgages only require three percent down, and they have very lenient credit score requirements.
Clear Up Your Collections
One thing that almost all lenders won’t tolerate are active collections against you. The reason is that collectors can make claims on your property in a lawsuit, including your new home. So even if you have bad credit, make sure you clear any outstanding collections. This will help you to qualify even with poor credit.
Save Up For a Larger Down Payment
If you can gather together some cash for a larger down payment, your mortgage application will be more attractive. Some lenders have a higher tolerance for poor credit if the buyer (that’s you!) has more vested interest in making timely payments. That means putting more of your own money toward the purchase.
Seek Out First-Time Home Buyer Programs
Many states have first-time home buyer programs that help those with poor credit get into a first home. Note that even if you owned a home previously, some of the “look back” periods only go back three years. And, if you owned a home with a previous spouse, if you didn’t actually buy the home but were only named on the deed, that doesn’t count as a previous home purchase, either.
You and your family deserve to have a home of your own. While it’s financially better—and easier—to wait until you have good credit to buy, you really don’t need to wait that long. You can buy a home now and improve your credit as time goes on. Go ahead and apply some of the strategies mentioned above, and chances are you’ll be nesting in your new home before long.