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How to Buy a Home With Bad Credit

Buying a home is an exciting step in everyone’s life; but buying your first home is incredibly difficult if you have bad credit.

With a bad credit score, you may feel like you are light years away from buying your first home. Fortunately, there are steps you can take to buy your first home sooner rather than later!

Get an FHA Loan 

Even with bad credit, buying a home can be possible with an FHA loan. FHA mortgage loans are mortgages that are guaranteed by the U.S. Government’s Federal Housing Administration, making them accessible and affordable for homebuyers. 

FHA loans, which are offered through any conventional bank and most credit unions, are tailored to help homebuyers with bad credit find and afford the home they need. 

FHA loans do have some lending criteria, however, and they might not accept certain borrowers with too low of scores. The lower your score, the higher your interest rate will be or the larger your down payment requirement will be.  

In order to make sure you can afford the payments, FHA loans are dependent on your monthly income. Ideally, you want to achieve a low debt to income ratio, meaning that all your combined debt (credit cards, car payments, student loans) use less than 40-ish percent of your monthly income. 

FHA loans are perfect for those with credit scores as low as 580-699. If you have a credit score of 500-579, you must put down 10% of the purchase price of the home to qualify for an FHA loan. If you have a credit score of 580 or higher, you can put 3.5% of the purchase price. Applicants who have a minimum decision credit score of less than 500 are not eligible for FHA mortgages, but still have options for buying a home, such as cosigning a mortgage (more on that below). 

Thankfully there are many loan options for those with less than perfect credit, so if you don’t qualify for an FHA loan, don’t worry: There are other options!

Cosign a Mortgage Loan

If your credit is too low to qualify for an FHA loan or your debt-to-income ratio is too high, having a cosigner might be a good solution. 

Some find that having a cosigner for a mortgage will greatly increase the chance of the mortgage getting approved. There are pros and cons to this, as you are sharing a very large responsibility. 

Cosigning is more than just a signature on a paper; it is a legal responsibility of the cosigner to ensure that the mortgage is paid on time each month or carry the credit and financial responsibilities if it goes unpaid. Your cosigner will be affected if a payment is missed or late, but will also have access to see when payments are being made. By using the cosigner credit score, they are agreeing that the mortgage will be paid or they will risk their finances or credit if it doesn’t. 

Many traditional lenders will allow cosigning for a loan. Most lenders require a strong relationship for cosigning, such as relatives or business partners. Most require your cosigner to live in the United States, and they will still have to meet the underwriter’s loan requirements for credit, income, and more. 

This means that they will have to provide tax returns, bank statements, income, and more. Once approved, you both will have to sign the documents for the loan. Always make sure to verify the cosign status, and ensure if the cosigner’s name will be attached to the property. 

Improve Your Credit

There are some quick ways to boost your score if done correctly! By fixing your score, you can qualify for longer loan terms, with less down, and even lower interest rates. 

The first way to improve your score is to make sure that you make your payments on time. Utilities, credit cards, car payments, and more can be streamlined to be paid automatically from your accounts, but late and missed payments will negatively affect your score. 

Lowering your debt to income ratio will also improve your credit, so paying credit cards off quickly will help improve your score. 

Another way to increase your score is to become an authorized user on another line of credit. Family members can add you to their existing accounts to help improve your credit. 

You can also meet with a debt counselor, who can help you evaluate the best options for consolidating your debts and making your payments more manageable. Debt counselors make it easier to manage your debt in responsible ways and raise your credit score. 


Buying a home with bad credit is possible. Homeowners can use FHA loans or even have friends and family cosign loans to get the mortgage they need. But improving your credit score before you start home shopping is a great way to get the best rates. 

To sum up, here are the three ways you can buy a home with bad credit: 

  1. Get an FHA loan
  2. Cosign a loan
  3. Fix your credit

Good luck!

Catherine Way is a marketer and content creator for hard money lenders, commercial realtors, and more. She loves to find new ways to connect with people and provide valuable information about the ever-changing real estate markets. She currently writes and creates for Prime Plus Mortgages -Hard Money Lender Arizona.

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