How to Deal with Low Credit Scores When Buying Your First Home

Achieving the dream of home ownership is hard enough already, but if you have low credit scores, the process can be made even more difficult. The good news, though, is that there are still ways you can buy your first home as long as you put in some work and find the right lender and loan product to help get you over that proverbial hump. Let’s take a look at how to deal with low credit scores when buying your first home below.

How to Deal with Low Credit Scores When Buying Your First Home

Check your credit score

Before buying your first home, it's important to understand what factors go into a credit score. If you have low credit scores, there are still mortgage rates and mortgages available for you. Lenders may be more cautious in giving out loans, but they're not all the same. There are plenty of lenders who will work with you if you just ask! They'll want to know more about your income level, employment history, outstanding debt balance and monthly obligations. Some lenders will also look at the value of your savings account or any investments that you have. Talk to an experienced lender about how much you can afford before shopping around for mortgages from different lending institutions. The first-time home buyer guide has helped many people find success as first time homeowners!

Get pre-approved for a mortgage

If you have a low credit score, it can be difficult to find the right mortgage rates. However, there are many mortgages for buyers with lower credit scores. To find the best mortgage rates for your situation, 

here are some steps you should take before going on your search:

  1. Find out what your credit score is. You will need a copy of your report from all three credit bureaus (Equifax, Experian, and TransUnion) in order to get an accurate reading of your score. If you don't know where to go for this, call your bank and they will provide one for free. 
  2. Research which lenders offer mortgages for low credit scores - often these are non-bank lenders like Quicken Loans or Rocket Mortgage. 
  3. Get pre-approved from at least two different lenders so that you have options when looking at houses and comparing prices. 
  4. Don't forget to consider alternative forms of financing such as VA loans or FHA loans if they apply to you!

Look for homes within your budget

First, you'll want to make sure that you can afford the home. Next, you'll need a way to finance it. You can apply for a mortgage through your bank or through the lender your real estate agent is using. 

To qualify for a mortgage, lenders usually require you have at least 20% of the purchase price saved up in cash or an equivalent amount in another liquid form. 

If your credit score is low, consider looking into mortgages for buyers with lower credit scores. Lenders will also look at other factors when approving your application. For example, if you work on building up your credit score over time and use a co-signer who has strong credit, then you may be able to get approved for a mortgage in the future!

Research down payment assistance programs

There are many first-time home buyer assistance programs that you can use to help you find a home. One of the most popular is the FHA loan. This program does not require any down payment and will be a great option for someone who has a low credit score. For more information on this program, read this blog post on First-time Home Buyers Guide: How to Deal with Low Credit Scores when Buying Your First Home by HousePointe Mortgage Solutions

Find a real estate agent

It's important for first-time home buyers to educate themselves about the process of buying a house, and what obstacles they may face. A good resource for first-time home buyers is the National Association of Realtors First-Time Homebuyer guide. The guide provides an in-depth look at the entire process from start to finish and can be found here. Another way to prepare is to find a real estate agent who specializes in working with people who have low credit scores. 

The next step will be submitting your offer on the property of your choice, including how much you're willing to pay and when you want possession. If your offer is accepted by the seller then it will go through underwriting where they'll decide if it meets their requirements. If not then you may need more funds or something else like a co-signer or higher down payment before moving forward.