6 Strategies to Help You Purchase a Home With Poor Credit

kpacker1
Aug 19
3 min read

Updated: Sep 28

While having good credit certainly makes life easier, it’s still possible to buy a home even if your credit isn’t ideal. You may need to provide extra documentation or pay off some debts, but there are many types of loans that make home ownership possible for people with low credit. Owning your perfect home can still be within reach. Poor credit doesn’t have to mean a lifetime of renting.

Hi! I'm Kristi Packer, a realtor with Red Fox Realty. I am really excited to walk with you on your home buying journey. I will help you find your perfect home and answer all your questions along the way so you are informed and can make the best decision for you! I will walk you step by step through the entire process.

Strategies for Home Ownership with Poor Credit

Here are 6 strategies to help you move toward owning your own home:

1. Clean Up Your Credit

Take time to review your credit report and dispute any errors. You can go to AnnualCreditReport.com to get your free report from each of the three major reporting agencies. Pay down your credit card balances to less than 30% of their limits. Aim for several months of on-time payments for all debts and utilities. Even a few months of consistent improvement can make a big difference.

2. Consider an FHA Loan

FHA loans are loans that are insured by the government. They have more flexible eligibility requirements, even if you’ve had a foreclosure or bankruptcy in the past. With a down payment as low as 3.5% (which can come from a loan or gift), these loans are often an excellent option.

3. Use a Co-Signer

Do you have a friend or family member with good credit and who would be willing to help you? A qualified co-signer can improve your chances of mortgage approval and may even help you secure a better interest rate. Just remember—the loan appears on their credit too, so you’ll need to keep payments on time.

4. Make a Larger Down Payment

The more you can put down, the less risk for the lender. A substantial down payment can sometimes outweigh a low credit score in a lender’s decision. If you have a savings or 401K, this might be an option for you.

5. Work with a Mortgage Professional

Find yourself a recommended mortgage professional. This person can review your credit and financial situation, give you guidance on options to increase your credit and improve your chances of getting a loan. They will also guide you toward the best loan options for your circumstances. Their advice can be invaluable in improving your chances.

Tip: Check with your realtor for highly trusted and recommended professionals who can work with you. I have lenders who I trust and can get the job done when typical lenders can't.

6. Increase Your Income

Mortgage approvals often hinge on debt-to-income ratios. Reducing your debt is one way to improve those ratios. Earning more is another. Do you receive money from any other sources? Do you have a side hustle or is there a way for you to make more money at your current job? Extra income can help in your approval process.

The Importance of Preparation

Preparation is key when navigating the home buying process, especially with less-than-perfect credit. Start by gathering all necessary documents, including your credit report, income statements, and any other financial information. This will help you understand your current situation and identify areas that need improvement.

Building a Support Network

Having a support network can make a significant difference in your journey to home ownership. Surround yourself with knowledgeable friends, family, and professionals who can offer guidance and encouragement. This network can help you stay motivated and informed about the best practices in real estate.

Bottom Line

Having less-than-perfect credit doesn’t mean home ownership is out of reach. With the right strategy, preparation, and guidance, you can get the keys to your own home.

📲 If you’re ready to explore your options, let’s talk! I would love to walk you through the entire process, connect you with trusted lenders and guide you every step of the way to purchasing your perfect home.