How to Buy a House With Imperfect Credit

A house with a red for sale sign in the yard

1. The Credit Markets Are Not As Bad As You Think

Although mortgages became almost impossible to find right after the crash in late 2007, the market has gradually normalized. With this in mind, if your credit score is 620 or above, it is good enough to qualify for an FHA loan. FHA loans are limited in size but vary from $271,050 in low cost areas all of the way up to $729,750 in high cost areas. As long as you are looking to buy a house in that size range, have 620 credit, and have three percent to put down, you can get a mortgage with your "bad" credit.

2. Fix Your Credit

Many people with low credit scores can significantly increase them through doing a little bit of work to fix up their credit. Find a reputable mortgage broker who will also help you to fix your credit. Be ready to dispute errors on your report and even pay off some bills. Unless you have a bankruptcy or severe amounts of outstanding debt, getting good enough credit to get a mortgage is easier than you may think.

3. Trust Your Spouse

If you are married and your spouse has better credit than you do, have them buy the house alone. If their income is adequate to service the mortgage, they can typically buy the house and apply for the loan by themselves. Although you will not get the benefit of having a mortgage on your credit, you will have a house. This can also work for unmarried couples or even friends, but your risk of losing your house is greater because of the transitory nature of those relationships.

4. Seller Financing

If no bank will finance you, find a seller who will. There are typically two classes of sellers who will do this: investors who let you rent-to-own on a contract-for-deed and long-term owners who have the house free and clear and would rather receive payments over time than a lump sum. In both cases, you can frequently gain control of the house without having your credit checked. You should work with a real estate agent to find sellers who want to sell while also looking for rental homes to find rent-to-sell options.

Do not fall behind on payments for a seller-financed house. The protections that apply to borrowers do not apply to contract for deed holders.

Find a reputable mortgage broker who will also help you fix your credit