I Have Bad Credit? What Are My Options For Buying a House?

FHA MortgageAtleast once a week, I get an email that sounds something like “I have bad credit and I want to buy a house” or “…I want to lease-to-own” or my favorite “I have bad credit and I want to buy a bank owned property.”

It wasn’t that long ago that you could purchase a house with a credit score less than 600 however as we have all experienced over the last  five years, that isn’t a recipe for success.  Some sub-prime loans were made to borrowers that were less-than-mortgage worthy and those borrowers quickly defaulted as a result of not having savings or an adjustable rate mortgage.

Bad credit is a fairly subjective term.  If you’ve had a home foreclosed upon or declared bankruptcy and had that discharged in the last 7 years, you are most likely not mortgage-worthy yet.  Same holds true for borrowers that have had a car repossessed or faced eviction from their landlord.

Judgments, wage garnishments, unpaid tax levy’s are also items that will prevent most home buyers from obtaining a mortgage – but that can change as these items are paid in full.

For buyers with low credit scores, the best solution is to pay bills on-time, open a credit card and keep your balance below 1/3 your credit limit (best not to keep a balance at all).  Low credit may not be your only obstacle to purchase so it’s a good idea to speak with a mortgage banker to find out what it will take to become eligible for a mortgage.

You will also need savings to use a down payment on your new home.  For a government-insured FHA mortgage, borrowers will need atleast a 3.5% down payment ($3,500 on a $100,000 home) plus closing costs (varies by lender).



  1. Avonda Smith-Taylor says

    I had a house that went into foreclosure in 2008 in North Carolina and I am receiving notices from a collection agency, stating I owe $25,000. How is this possible? I thought if the house went into foreclosure that was it. It seems since there was a first and second mortgage, the second mortgate is still due. Can they do that?

    • Jonathan Osman says

      Absolutely! In both North and South Carolina, the foreclosure action does not eliminate the balance owed on the mortgage. You’re not alone as so many former homeowners assumed the same as you did (that if the home went to foreclosure that no more is owed) and they’re now being pursued for the balance owned on the debt. It is routine, especially for second mortgages, that the debt is sold off to collection agents but they will negotiate with you. If you negotiate, you need to make sure that you are obtaining debt forgiveness. If you ignore it, expect the collection agent to seek a judgment for the difference.

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