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4 Ways to Get a Home Loan Even with a Bad Credit Score

Written by Posted On Thursday, 01 March 2018 04:36

We all make mistakes in life. Though we learn from these mistakes and move on, the financial implications of such errors continue to haunt us, and at times, can even impede us from getting the right home loan to buy the house we want.

Low credit score should never be a deterrent to getting a home loan and realizing your dream of living in your own property.

But unfortunately, not all banks and lending institutions think this way. They use credit score as a measure to decide if they should approve a home loan, and if so, at what rates. More often than not, banks tend to avoid giving loans to those with low credit score. Some financial institutions do give the loan, but charge exorbitant rates of interest on it.

So, if you're caught in the web of bad credit score, don't fret. Here are some ways to get a home loan at a reasonable rate of interest.

FHA loans

Traditionally, you need a credit score of 620 to 640 to qualify for a home loan. Since that was too high for many Americans, the Federal Housing Agency, or the FHA in short, was created in 1934 to insure the loans that lenders give to those with a low credit score.

In other words, with just a minimum score of 580, you can get a home loan under the FHA. You can even get good terms on your mortgage when you qualify through FHA. For example, you can opt for a 15 year or 30 year loan with just a 3.5% down payment.

VA Home Loans

Another good choice for bad credit home loans is the VA home loans. These loans are backed by the Administration of Veteran Affairs, so they are fairly easy to get even when you have a low score.

Though VA does not have a minimum credit score to qualify, a score of 620 or above is necessary for approval. Also, it is available only for those who have served in the military for a certain period of time and for veterans.

USDA Loan

If you have a low credit score and are willing to buy a property in a rural area, USDA loans are the right fit for you. You can get 100% financing with a score of just 640.

Work on your credit score

The moment you decide to buy a house, get a free credit report and start working towards improving your score.

You can improve your score by paying off past loans, staying away from piling more credit, using a credit card responsibly and avoiding unwanted purchases. In general, good financial prudence can help to boost your score and make home loans more accessible for you.

In short, bad credit score is not the end of your property-buying dreams. Work on ways to improve your credit score and at the same time, start looking for different places to get a home loan at reasonable terms and conditions.

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Martina Angel is a writer and real estate agent. She is especially interested in the purchase, ownership, management, rental and sale of real estate for profit. She also volunteers for local water conservation charities in her free time.

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