Arbor Financial Group Marketing Engines, Inc.

First Time Home Buyers with Bad Credit

Have a bad credit but want to buy a house? Here are some tips for you!

If you're looking to buy your first home in Orange County, California or Georgia, but your credit is less than stellar, don't give up hope. Programs for first time home buyers are designed to help you in this matter. You've probably heard that in order to qualify for a mortgage, you're going to have to come up with a 20% down payment, and your credit history is going to have to be good to excellent.

The truth is actually a bit different. You don't need a huge down payment, and your credit doesn't have to be outstanding in order for you to buy your first home under competitive rates. Plus, there are specially designed programs for first time home buyers. What a bank or other consumer loan institution considers to be good credit may be a good deal higher than what it takes to satisfy a mortgage lender.

Credit Scores

If you're wondering what's considered an acceptable credit score, here's how it works:

  • A credit score of 740-800 is considered outstanding.
  • A credit score of 720-740 is great.
  • A credit score of 700-720 is good.
  • A credit score of 680-700 is mediocre.
  • A credit score of 620-680 isn't great, but it is approvable.

There are a lot of programs for first time home buyers. Your credit score will determine what type of mortgage you qualify for - whether it's a conventional mortgage or an FHA-type mortgage. It will also affect your interest rate, and any additional charges. Essentially, the lower your credit score, the higher your interest rate and any attendant charges will be. In short, first time home buyers with bad credit will have to shell out more.

Credit History

If your lender determines that your credit score is good enough, the next thing they'll look at will be your credit history, and that will also determine whether or not you qualify for a mortgage. First time home buyers with bad credit history can actually hurt you more than a low credit score. If you have a pattern of late payments on credit cards or other debts, or if you've had accounts closed for non-payment, you may have difficulty qualifying for a mortgage. In fact, first time home buyers with bad credit can even have a harder time qualifying than someone who's had a foreclosure a few years ago, but no other pattern of delinquencies. Essentially, first time home buyers with bad credit would be asked "what happened, why did it happen, and is it likely to happen again."

It can be possible to work around a pattern of delinquencies, but first time home buyers with bad credit will likely be required to make a bigger down payment, and your debt-to-income percentage will be subject to increased scrutiny.

Credit Issues That Can Affect Your Eligibility

  • Delinquent Federal Debt: If you owe the government money, you will not likely qualify for FHA financing.
  • Late Student Loan Payments: If you made a late payment on your student loan in the past year, you are more likely to get approval for conventional financing.
  • Bankruptcy: Under Chapter 7 bankruptcy, you have to wait 24 months following the date of your discharge before you will be eligible for an FHA loan (using 3.5% down), 48 months for a VA loan (no money down), and 48 months on a conventional loan (regardless of the down payment).

Do Your Homework

When first time home buyers with bad credit are seeking a mortgage, the most important thing is to come armed with facts and figures. First, know your credit score. Second, get a copy of your credit report - you can get it at no cost from AnnualCreditReport.com. Gather as much information as you can, so that you can explain any delinquencies on your credit report.

Finally, when first time home buyers with bad credit are consulting with their potential lender, they should be specific, and do not try to hide anything. You can safely assume that they already know what's on your credit report, so what you need to do is have reasonable explanations. Less than satisfactory credit doesn't necessarily mean that you won't qualify for a mortgage.