Buying A First Home With Bad Credit

By Chris Carter

Buying a first home with bad credit isn’t possible without a little help, and understanding what kind of help is important. There is no bigger disaster than someone looking to buy a home when they have bad credit or no credit, but there are some options available. The FHA makes home purchases possible for those who otherwise wouldn’t be able to do so, and has the most competitive rates today.

When considering buying a first home with bad credit, it is best to consider what bad credit really is. If you only have a few medical bills that doesn’t necessarily ruin your credit rating. However, collections and judgments on your credit report can hurt your credit, as well as high balances in proportion to any open credit lines or bills that have exceeded their credit line.

While you don’t need perfect credit to purchase through an FHA program, you do need to know what FHA expects. Conventional loans which come through Fannie Mae and Freddie Mac won’t approve anyone with bad credit. This means that unless your bank works together with FHA, than you are less likely to get any approval at all. Conventional loans have strict guidelines and large down payments.

FHA will generally approve someone with good job time and good income, with very little debt. However, they will look to see if you have savings in the bank, and if you have other investments. Slow pay on another mortgage will disqualify you, as will other delinquent federal debt. Medical collections when fairly small are usually overlooked, but it is best to make payment arrangements on them if you can.

Buying a first home with bad credit means that you need to look at begin paying collections off and paying bills down, while saving more money for a down payment. FHA will allow as little as 3.5% down on a home with a credit score of 620 or better, but with a score of 580 or better they may require as much as 10% down or more. Knowing the guidelines can help you plan better and be realistic.

If you have just been discharged from a bankruptcy, than you should be prepared to wait for at least two years from the date it was discharged. Understanding these rules and regulations will help you plan for your future now that you know you have some time to do so. Many times those who file a bankruptcy go back and do the same thing all over again, and this is irresponsible.

FHA considers how you pay your bills a good testament of you view your financial responsibilities overall. By not paying your bills you are saying that your credit isn’t important, but fortunately FHA realizes that joblessness and long term illness can play a role in someone’s hardships. FHA will often take letters of explanation in order to get a loan done for someone.

These exceptions may be limited, but they are definitely available for the right candidates. Every borrower still has to qualify, so get your credit in order while you can.

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