Bad Credit Home Loans For First Time Buyers

Q: Are bad credit home loans for first time buyers available, if so, how can I qualify?

A: Bad credit home loans for first time buyers may be available depending on the circumstances, and how bad the first time buyers credit profile is. In some cases, first time buyers with bad credit may have the ability to purchase a home, however buyers with bad credit will likely have a much higher interest rate than a first time buyer with good credit.

Before looking for a “bad credit home loan”, first time buyers should understand what a FICO score is and how it will effect their chances for securing a home loan, as well as how it helps determine the interest rate they will receive on the home loan. A persons FICO score is what most lenders use when determining the risks associated with lending money to that particular individual. The better an individuals FICO score is, (generally) the better their chances at securing a home loan will be, and the better their interest rate on the home loan will be. Each individual has three FICO scores, one from each of the three credit bureaus. An individuals FICO score can change (negatively or positively) in accordance to the activities conducted which impact one’s FICO score. Some of the activities which could impact an individuals FICO score negatively (causing them to have bad credit) could be: paying bills late, opening too many lines of credit in a short period of time, maxing out credit cards, filing bankruptcy, or having few or no lines of credit at all. FICO scores will range from the 300’s up to 900, with anything below 620 usually impacting the individual’s chances at securing a loan at a decent rate, if at all.

For first time homebuyers a good loan to start with may be a FHA loan (Federal Housing Administration mortgage loan). FHA loans, while not specifically “bad credit home loans for first time buyers”, can be great home loans for first time buyers for a number of reasons, including they can require little to no money down, and first time buyers may be able to secure a FHA loan with credit that may be considered bad or insufficient at a non-FHA lender. Though FHA loan requirements do change from time to time, generally first time buyers with a credit score above 500 may be eligible to receive a FHA home loan. For buyers who believe their bad credit will prevent them from securing a FHA loan, do not assume this until you have spoken with a HUD sponsored housing counseling agency. First time homebuyers can speak to a housing counselor for questions and/or advice on credit issues or first time home buying. Find a HUD sponsored housing counseling agency in your area at FHA.gov.