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 There are lots of reasons that people wind up with bad credit. Individuals make mistakes. They might stretch too far when it comes to financial commitments or sometimes they simply experience an unfortunate run of bad luck such as losing a job. Regardless of the reason, a lot of these same individuals often wonder to themselves - Is buying a home with bad credit possible?
Bad Credit and Home Loans
As the saying goes, anything is possible, but is this reality or just a dream? If you think you have a bad credit rating, what you are really saying is that you suspect that you have a poor credit score. Credit reporting is a way that merchants share information with agencies in the hope they can avoid individuals with poor payment histories. For example, it's a way of limiting the risk of non-payment on a home loan or mortgage.
Bad credit usually starts with delayed or late payments on smaller loans or credit cards, but the impact can be substantial. Lending institutions leverage the information on credit reports in an attempt to lower the risk of default or non-payment on a loan.
When the stakes are high - such as the case when buying a home - the lender that you've applied to for a mortgage will have a set of rules they apply when evaluating a potential client for credit (or a loan). Most credit reporting agencies use numerical scores to evaluate consumers for credit risk. Lending institutions will set policy - Who will be approved and under what conditions? And this is where the score on the applicant's credit report becomes important.
What is a Bad Credit Score?
Of course there is the fundamental question at hand here - Is my credit score bad? When it comes to FICO credit scores, everything is relative - certainly some scores are worse than others. But credit scores vary from individual to individual and scores even show some trends from state to state.
If you know your credit score and you're trying to figure out how "bad" that score is then take a look at our article About Credit Scores. There you'll find some information on the range of credit scores and the scoring components. If you're looking for geographic information, take a look at our article on national average credit scores. In that article we provide average credit scores for each state.
Credit Repair Services
If you have good reason to believe that you have poor credit, then one thing you might consider is contacting an agency that specializes in credit repair. We have talked about this extensively in our Debt Consolidation section and in particular in our article on Non Profit Debt Counseling.
To save you some time, and to summarize the information found in that article - be very wary of agencies that promise instant credit repair. It simply doesn't work that way. Mistakes on your credit report can be corrected, but beyond that only time and a good payment history will result in a better credit rating.
This is not to say debt counselors should be avoided. If you need help managing your financial affairs then make sure you get the help you need before buying a home. The last thing you need is to buy a home then lose it because you cannot afford the monthly mortgage payments or are not well versed in budgeting or home economics.
Bad Credit Home Buying Programs
If you've got bad credit and you're focused on home buying, then the best source available to you is probably the US Department of Housing and Urban Development or simply HUD. The way that HUD helps is to insure loans against default, so that the actual lender or creditor is insulated from the risk of non-payment on a mortgage.
Insured Loans for Credit Risks
As a matter of fact, HUD has a special program that in some cases will insure loans for families who do not meet the standard credit risk requirements to buy low cost homes. Under this program, homes can be purchased for as little as 3% down and the closing costs can be folded into the mortgage.
To get started in this program, you need to contact your local HUD house counseling agency which can be found on the HUD website. You can also call HUD's toll free telephone number (800) 569-4287 and ask them for a list of local house counselors.
Local Home Buying Programs
You can also check to see if your state offers local home buying assistance for bad credit families or individuals. Once again, you can look on the HUD website for local home buying program information. You can also look in the blue pages (government pages) of your telephone book. You need to find the listings for your local office of housing and community development. If you can't find a listing under that heading, then your township office or county office can direct you to the right people or government agencies that can help.
About the Author - Buying a Home with Bad Credit
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