Buying A House With A Low Credit Score

If your credit problem isn’t too serious, you may still be able to get a traditional loan. First, you should correct any errors on your credit report, and challenge any entries you think shouldn’t be there. This is your legal right. If you can get it changed, then once those changes are reflected in your credit score, you may be able to apply again and get a loan for that home.

You also can go only to lenders who hold their own loans "in house." This means they don’t sell them into the secondary market, which means the loans don’t have to meet certain requirements. A bank which holds its own loans can make their own rules (to an extent). Ask around to see if some of your local banks or credit unions keep mortgage loans in their own portfolio. Few do these days, but some still do. It pays to ask.

A more creative way to overcome bad credit is to buy a house with another person. This isn’t only for married couples. Any two people can buy a home together, and the lender will look at both credit histories. It might be tricky to buy a house with a friend, but it can be better for both compared to renting. For example, you might have a down payment, and your friend could have good credit. You could agree to sell the home five years later to recover your down payment and each of your respective shares of the equity that is built up from appreciation and the paying down of the loan.

Seller financing is another way to buy when you can’t get a loan because of bad credit. Some homes have sold without credit checks and even with nothing down by sellers who financed the purchase. Their motivation is usually to get a higher price and/or to sell a problem property, but this doesn’t rule out a good opportunity for you. When sellers don’t offer terms, find out if they own their houses free and clear. If so, you could make an offer that involves payments to the owner rather than getting a loan from the bank.