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List: Posted: 12/10/10
If you have bad credit, you might think that there’s no way you could buy a home. That’s not the case, though! There are many ways to compensate for your credit so that you can afford a home and all the stability and happiness that it brings.
One way to buy a home with bad credit is to save up a bigger down payment. If you can put more than 20% of the purchase price down, banks will often overlook somewhat bad credit. If your credit is awful, you’ll have to do more than this, though.
Another option is to purchase less home than you can technically afford. A bank will not want your total debt payments to exceed 45% of your monthly income, and this ratio may be more important than bad credit. If you buy a cheaper home so that your payments are more like 20% of your total monthly income, the bank will look more favorably on your bad credit.
You can also use special financing programs for people with bad credit or little credit history. One option is to go with an FHA loan. This is basically a loan backed by the Federal Housing Administration. The FHA guarantees that they’ll pay your loan if you default – or stop paying it. This makes you less of a risk for banks, and you can get a home loan with bad credit this way.
Of course, there are often ways to fix your credit by a few points very quickly. Bad credit might be the result of mistakes on your credit report. You can also pay off credit card debt to help get your credit score up.
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