When you’re buying a home for the 1st time, chances are you might need a home loan. That is because paying the cost of the house in full is not feasible for most people.
It is easy for ordinary folks to get a home loan, but can a person with bad credit get a home loan?
Yes, he/she can!
The truth is that even if you have a credit score of just over 500, you can still get a home loan for your 1st home.
Today, we will help you understand how to get home loans for bad credit first-time buyers.
We will share with you not just a couple of ways but five different ways in which you can get home loans for bad credit first-time buyers.
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How To Get Home Loans For Bad Credit First-Time Buyers?
The options you have to get home loans for bad credit first-time buyers are conventional loans, FHA loans, VA loans, USDA loans, state and local program loans.
We will go into the details of all these types of loans below. Once you go through the list below, it is easy to avail the loans.
1. Conventional Loans
Surprised to read this option?
Many home loan lenders lend specifically to people with bad credit. It means that just because you have bad credit does not mean that you can’t get a loan for buying a home.
Some lenders will lend to individuals with over 580 credit score. It means the first option you need to use is these lenders who lend to people with bad credit.
However, you must keep in mind that the interest rate which lenders charge to people bad credits is on the higher side. If you’re okay with that, you can first try out these conventional lenders.
Only once you have exhausted these options can you go ahead with the other ones, which we will highlight below.
2. FHA Loans
The FHA stands for federal housing Administration. Also, it has a program through which the first-time homebuyer or anyone who hasn’t purchased a home for the past three years can get a loan.
The good news is that FHA provides a loan to anyone with a credit score of 580. When your credit score is over 580, you might need the down payment to be as low as 3.5%. Essentially that means you can easily buy the home.
Have a credit score lower than that?
If so, you need to think about making a 10% down payment. If you’re ready for the same, it can provide loans to individuals with a credit score between 500 to 579.
Only when your credit score is below 500 you cannot qualify for the loans by FHA.
However, FHA has certain eligibility criteria you have to meet. Only when you meet them can you avail of FHA loans.
The primary among them is that the home you are buying with the help of their loan should be your primary residence. In case you’re buying a second home or a home for investment, you cannot qualify for FHA loans.
The other criteria are usually related to your employment and citizenship. They are easy to meet.
Not only that, FHA offers you loans at pretty competitive interest rates as well. Chances are, you might save on interest costs when you opt for FHA loans for buying your first home.
Thus, if conventional lenders are not offering you loans, you can certainly go with FHA loans.
3. VA Loans
The Department of Veterans Affairs is another organization to provide loans to first-time homebuyers. They provide loans only to a select group of individuals. These include:
- Current serving members
- Surviving spouses of service members
Only if you fall into that category, Department of veteran affairs can provide you with a home loan.
You must keep in mind that the Department provides the loans through private lenders. Private lenders will go ahead and give you the loan despite bad credit because the Department guarantees a part of the loan. It means that the lenders can easily lend to you.
Not only that, the interest rate is pretty favorable as well. It is because of the additional guarantee which the Department provides.
The news is that in addition to getting a loan if you have a low credit score, you can also get a loan if you have bankruptcy on your record. Essentially, if you fall into this category of individuals and want to buy your 1st home, this type of loan can come to your rescue.
With proper negotiation and documents, you can also get a loan that requires no down payment on your part. It means that buying the home certainly becomes easier for you.
You need to strictly abide by the qualification criteria highlighted above.
As long as you’re falling into that criteria, it becomes easier for you to get the loan.
4. USDA Loans
USDA loan programs are another option for getting a home loan even with bad credit. It is easier to get such a loan if you are buying your home in a rural area.
The good news about these loans is that they are not just limited to first-time homebuyers. They cater to a wide variety of homebuyers. Not only that, in most cases, you do not require a down payment as well. It means that buying a home is certainly easy.
USDA loans are available for people who want to repay a single-family home or buy a single-family home. The home should be in a rural area.
There are different types of USDA loans available. We will go into the details below.
Section 502 USDA loans
These types of loans lend you the money to buy a home. USDA directly lends the amount. Such a loan also has low monthly payments. That is why; it becomes easier for you to pay.
The loan does not require you to pay any mortgage insurance or any down payment. That is why; this type of loan is one of the most lucrative options for first-time homebuyers with bad credit.
USDA guaranteed loans
When you’re opting for this loan, USDA guarantees a portion of your loan. The loan will be processed through a private lender. These loans also do not require you to pay any down payment. However, USDA will charge you a guarantee fee which is incorporated into your monthly payments.
The loans which are generally under this category have thirty-year tenure and are fixed-rate loans. That is why, as long as you’re buying a single-family unit in a rural area, you can qualify for this loan as well.
USDA housing repair loans
While this type of loan is not precisely for buying a new home, it is to repair your current one. The repair work involves structural issues or health hazards. The loan amount can be up to $20,000 or even more. You get 20 years to pay off the loan.
Thus, if you have bad credit and want to buy a home for the 1st time, USDA can certainly help you out. The only caveat is that you should buy the home in a rural area. If you fall within that criteria, it is easy for you to get a loan on favorable terms.
5. State and Local Programs
Apart from these options, there are various other alternatives by state and local authorities which can help you get a loan.
An example is that the State of New York has a mortgage agency that lends to first-time homebuyers. There is no minimum credit score requirement. There are a few other eligibility criteria that you need to meet. However, they are comparatively easier to meet.
Similarly, various other states offer such programs.
Thus, if you’re not able to get a home loan through any other program, you have to check the local programs.
6. Good neighbor next
This is a program launched by Housing and Urban Development department. It is for individuals working in certain professions like:
- Emergency medical technicians
- Law enforcement officers
- And so on
The program provides loans to such individuals. The program has marked certain revitalization areas. Qualified participants can get excellent discounts if they buy homes in those revitalization areas.
The good news is that you can avail yourself of maximum financing if you have a credit score above 580. Even if you have a credit score between 505 and 579, you can get a maximum loan value of 90% of the overall property cost.
It means that getting financing for your 1st home is not going to be an issue. Not only that, the application criteria are pretty liberal as well. Essentially, you just need to be one of the above-mentioned professionals to avail the benefits of the scheme.
With the help of these six schemes, it is easy for you to get home loans even if you have bad credit and are a first-time homebuyer.
Before you make your decision, you can go through the FAQ below to know more about how you can get a home loan in your current situation.
Frequently Asked Questions (FAQ)
How can I buy a house with bad credit and no money down?
The best way to buy a house with bad credit and no money down is to either opt for VA loans or USDA loans. Both these offer loans at $0 down.
Since the federal government backs both these types of loans, most lenders are pretty lenient regarding terms and conditions. Not only that, the monthly payments are pretty reasonable. That is why; these are the best options when you’re looking to buy a house with no money down and bad credit.
Who is the best mortgage lender for bad credit?
The best mortgage lender for people with bad credit is rocket mortgage. The minimum credit score which they require is 580. The minimum down payment which they required is 3.5%.
In case you have an even lower credit score, you can go with Carrington mortgage services. The credit score requirement, in that case, is just 500. The minimum downpayment which you might qualify for is 3.5%.
Thus, these 2 are the best mortgage lenders if you have a bad credit score.
What is the lowest credit score to buy a house?
As we have highlighted above, the minimum credit score you need to buy a home is 500. There are a few programs and lenders that will lend you money to buy a home even if you have a credit score of 500+.
Ideally, if you have a credit score of 580+, there are a lot more options available.
Below 500, however, it will become really difficult for you to buy a house.
Can I get a home loan with a 500 credit score?
Yes, you can get a loan with a credit score of 500. You can certainly apply for FHA loans with a credit score of 500 or more.
On the other hand, we have highlighted a mortgage lender above who works with individuals with a credit score of 500 or more.
When you go below 500, however, there are hardly any options to get a home loan. That is why; if you’re currently having a credit score below that, it is time to work up your credit score. Only when you improve it to 500 can you get a home loan.
Now that you know the answers to these FAQs, it can become really easy for you to get a home loan.
So, getting a home loan with bad credit and your 1st home is not difficult. With our guide above, you can easily choose from 6 different alternatives and options you have. When you’re choosing between these six options, it can become easy for you to get a home loan.
It is time to know by the home of your dreams without worrying about your credit score or having to deal with high-interest mortgage lenders. Our guide above can certainly come to your rescue when it comes to getting a home loan for bad credit first-time buyers.