How to Qualify for a Home Loan With Bad Credit

If you have bad credit, trying to qualify for a home loan can seem nearly impossible. However, several programs and options are geared towards those who have had credit problems in the past. Most of these programs will require a credit score that is higher than 630. If your score is lower than that, it will be necessary to rebuild your credit before you proceed with the purchase of a house.

Things You'll Need

  • Financial statements
  • Seller contract

Step 1

Apply for a federal loan. Several federal loan programs are geared towards people who have bad credit. These programs typically have income restrictions that may vary by state, but generally you can qualify for a home loan even if a past foreclosure is still on your credit record. Freddie Mac is a federally backed lender that offers a program called Home Promise. This loan features a low fixed interest rate and is available to those with poor credit. Fannie Mae offers a different type of federal loan program. They work with approved lenders to guarantee loans for home buyers who may have had problems in the past with their credit. If you have had a foreclosure, you will need to wait for four years before applying with a Fannie Mae lender.

Step 2

Apply for an FHA loan. The Federal Housing Authority or FHA offers a loan under the auspices of the Department of Housing and Urban Development or HUD. This loan offers nearly 97 percent financing for a home and also has a low fixed interest rate. Loan terms are typically based on a 30-year mortgage plan. Income restrictions do apply and are calculated by your county of residence. Even those with low credit scores can typically qualify for a home loan under this program.

Step 3

Apply for a USDA loan. The United States Department of Agriculture offers a rural housing loan program that supplies 100 percent financing for qualifying properties. Typically this means small acreages in rural areas, but some small towns may qualify under the program as well. The loans offer fixed interest rates and assistance is provided for closing costs.

Step 4

Apply for a Veterans Administration loan. If you are a veteran, you may qualify for the Veteran Administration's loan guarantee program. Some restrictions may apply in terms of how low your score can be for approval, and income requirements may also be necessary. This program works by having the VA supply a guarantee to a lender for the amount of the mortgage. Closing costs and the down payment must typically be handled by the buyer under this program.

Step 5

Find a home with seller financing. In the event that you cannot qualify for a home loan with bad credit, seller financing may be your best option. Many sellers are willing to hold the contract on a property in exchange for regular monthly payments. Credit checks are typically not required and most sellers base their decision on good faith money provided by the buyer and their overall impression of the buyer. This type of contract will typically require a larger down payment.

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