Buying a house involves qualifying for a mortgage. If you have bad credit, this can be difficult since some lenders may be reluctant to give you a loan. A credit score under 650 is considered poor or "subprime," which means you may face higher interest rates or be unable to get a loan at all. However, despite the added challenges, you should still be able to buy real estate if you do a bit of research and find the right lender for you.
Save up a down payment. The higher your down payment, the less risk your purchase will be to the bank or lending institution since they are lending you less money and you will have more equity in the house.
Bring documentation of the reasons for your bad credit and the improvements you have had. Some lenders, including the FHA, are willing to look at this. The FHA is willing to work with people as long as it has been two or more years since bankruptcy. The FHA will also look at documentation that indicates why your credit is bad, an will note if it resulted from a job layoff or medical bills. If you are a veteran, a VA loan may also be an option.
Apply for and compare loans from different lenders. Since VA and FHA loans are offered by approved lenders at local or online banks, you can apply for loans with several banks that offer these types of loans. You may also want to apply at local credit unions, who may be more willing to look at the reasons for your bad credit instead of just your credit score. Once you have applied for several loans, compare terms and interest rates to see if you can find a loan that meets your needs.
Be cautious about subprime lenders but consider them as a last resort. According to HUD, subprime lenders are lenders who will provide mortgages to people with bad credit, meaning credit scores under 650, or people who cannot qualify for traditional financing. Subprime lenders tend to offer mortgages with higher interest rates and less advantageous terms. Still, as a last resort if FHA and other loans are not accessible, a subprime lender may provide you with a way to qualify for a house and eventually improve your credit and refinance to a more traditional mortgage.
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