When Your Credit Isn’t Great

Being a first-time homebuyer when your credit isn’t that great doesn’t put you in the best position to purchase a home. While this is a given, it doesn’t mean that it will be impossible for you either. Twenty-five percent of the US population have credit scores of under 600. You probably can invest in a home if you have bad credit but you should also consider whether or not you should. Here is some information that may help you to decide if you’re in the right spot to buy a home or if you should wait until you’ve rebuilt your credit.

Can you honestly afford a home purchase?

If you have the disposable income to make a decent down payment and keep up with mortgage payments, homeowners insurance, pay annual property taxes and assessments along with satisfying your other debt responsibilities, purchasing a home may be a greater possibility for you. If you are current on all of your debts and in the process of rebuilding your credit, you may be a better credit risk than those who are in heavy default and not making an effort to get caught up.

Reasons for bad credit

There is room in your credit report for brief explanations of negative activities. For example, identity theft, divorce, illness, unexpected unemployment or the death of a spouse. Medical bills are among the most common reasons for otherwise responsible credit holders to fall into arrears. If your spending habits are unhealthy, it is not recommended that you attempt to purchase a home but if you are responsible, the situation is different.

Rebuild your credit scores

You have the option of waiting until your credit scores are higher. If you’re on track with your financial commitments you can raise your scores each quarter and may qualify for a home loan with decent interest rates within a year or two. If you feel that you just can’t wait, there are a few other options available.

Seller financing

It is possible to negotiate a home purchase with an owner who is willing to go through an escrow account and carry the contract on the sale. These are hard to find, but it is possible. In this scenario, all of the legal work, closing costs and financials are taken care of by you and the seller with the help of the escrow company handling your account.

Bad credit loans

Some lenders are willing to take a chance on some applicants with poor credit ratings. Be warned that you are likely to pay extremely high-interest rates. This may be a deterrent because you will be paying much more than the home is actually worth. The default rates on bad credit homes are higher because there is an increased risk due to the higher payments that are usually required by the lender.


You may have enough disposable income to easily afford to buy a home, but not qualify for a mortgage. In some cases, having a co-signer with excellent credit can make a difference. This is one of the better ways to secure a home loan if you’re in the process of rebuilding your credit.

Final thoughts

Having bad credit doesn’t always mean that you cannot purchase a home; it just means that it will be harder to accomplish. Only you can determine if it is worth the higher price that you’ll pay because of inflated interest rates with a bad credit home loan. If you’re among the lucky few, you can make a reasonable deal with an owner contract negotiation, but these are difficult to find unless you know the owner and they are willing to take a chance on you. There is no substitute for a good credit rating when it comes to purchasing a home.