Doug's Credit Center Blog

How To Purchase A House With Bad Credit

A bad credit score can be the one thing that will keep you from buying the home of your dreams. This is because lenders will only be willing to loan you a small amount of money if you are granted an auto loan at all. When you have a limited amount of money to buy a home, it limits where you can buy.

How To Purchase A House With Bad Credit

Just because you can’t afford to buy a house in your dream neighborhood at the moment doesn’t mean that it is impossible to find a nice home. There are many neighborhoods that offer cheap housing, access to public transportation and good schools for your kids. If you need to buy a house with a bad credit history, here are some steps that you should take:

  • Improve Your Credit Score To At Least 640
  • Lower Your Debt-To-Income Ratio
  • Put At Least 20 Percent Of The Purchase Price Down

Following these steps will show a lender that you are serious about purchasing the home. Another benefit to doing this is that you will improve your credit score as you continue saving for your next home.

Improve Your Credit Score As You Save

Improving your credit score is easy to do is you save money and pay your bills on time. Having money in your savings account makes it easier to avoid using your credit card to pay bills. When you use a low percentage of your available credit, it keeps your credit score at a reasonable level. The difference between using 50 percent of available credit compared to 10 percent of available credit could be as many as 50-100 points.

Work With Local Lenders

National banks may have stricter standards as it relates to who gets a loan. However, local lenders are more concerned about developing a relationship with the borrower. They will see whether or not you have taken steps to prove that you are worthy of getting preapproved for a home loan as opposed to just looking at your credit score.

Buying a home is a monumental achievement. However, if you have poor credit, you may have to look a little longer for a lender who will give you a loan. Ultimately, you have to lower your debt-to-income ratio, start paying your bills on time and save as much money as possible if you want to buy a home in the near future.

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