How to Get a House With Bad Credit

One of the proudest moments in a person's life is when he is able to buy his first home and claim a place to call his own. For people with bad credit, this dream can easily be shattered by the cold reality of today's credit industry. There are options if you have bad credit, but sometimes you will have to pay more.

Step 1

Check out your credit report and score. This will strongly influence lenders' decisions to give you a home loan or not. If there are any inaccuracies in the report that hurt your credit score, contact the three credit reporting agencies to have the invalid black marks removed. If your score is below 550, it may be difficult for you to get a loan with a decent interest rate.

Step 2

Look for a federally backed loan. The U.S. government has programs that guarantee loans for first-time home buyers and others. This means that if you fail to make a payment or default on the loan, the government promises to make good the debt. This eliminates much of the credit risk to lenders and makes a loan much easier to obtain, but you have to find the right program for you. (See Reference 1.)

Step 3

Talk with the bank. If you really want a house, even if it means a high interest rate, then you can always try and negotiate with the bank. If your credit score is low, the bank may be more willing if you will accept a higher interest rate or a variable-rate rather than fixed-rate mortgage.

Step 4

Pay a larger down payment. People with good credit can get a home loan with no money down. Average to bad credit can mean a required down payment of up to 10 percent. If your credit is even worse, you may have to pay an additional 5 to 10 percent down in order to persuade a bank to give you the loan

Step 5

Rent a House. If you just can't seem to find a loan or don't have the money for a down payment, you can always seek a house to rent. Your deposit is usually only the first and last months' rent. Your rent may be more than a house payment, but you also don't have to worry about property taxes or making any repairs to the house and appliances.