Massachusetts Logo


Buying a Home with Bad Credit

By Steve Belakonis

When purchasing a home, your credit will play a very pivotal role in determining if you will qualify for a mortgage that will make buying a home possible. It is useful to know that you can still buy a home even if you have bad credit. Whether you have bad credit from poorly managed debt, have filed bankruptcy or have gone through a foreclosure, there are mortgage loan programs you can utilize that are specifically designed for those with less than favorable credit.

Different types of home loans for bad credit

There are three specific kinds of bad credit loans for first time home buyers that you may qualify for. These are FHA loans, VA mortgage loans, and subprime mortgage loans.

An FHA loan, otherwise known as a Federal Housing Administration insured loan, is a loan program that has been provided by the federal government since the 1930s to help stimulate the housing market, and it is designed to provide options for people who have fair or poor credit, have a low down payment (minimum of 3.5%), have undergone bankruptcy, or have been foreclosed on. It is the easiest type of real estate mortgage to qualify for and it is easy to transfer to a new buyer, should you decide to later sell the home. However, since it lacks other strict standards of a conventional loan, an FHA loan requires two kinds of mortgage insurance premiums, and for the house meets certain conditional standards via an appraisal from an FHA-approved appraiser. To qualify for an FHA loan, a borrower:

  • Must have steady employment history or worked for same employer for the last two years.

  • Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.

  • Must make a minimum down payment of 3.5% on the house, or 10% down if your credit score is between 500 and 579. The money can be gifted by a family member (conventional financing does not allow gifting).

  • Must have a property appraisal from an FHA-approved appraiser.

  • Mortgage payment (including principal, interest, property taxes, property insurance) needs to be less than 31% of your gross monthly income.

  • Monthly debt (mortgage, credit cards, auto, student loans, etc.) cannot be more than 43% of your monthly income.

  • Must have a minimum credit score of 500. A credit score of 580 and above requires a 3.5% down payment and a credit score of 500-579 requires a 10% down payment. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.

  • Must be two years out of bankruptcy, with good credit.

  • Must be three years out of foreclosure, with good credit.

The VA mortgage program is designed for first time homebuyers who are veterans of the armed services. Many times, VA loans will allow a first time homebuyer with bad credit to buy a home with no money down and then benefit from historically low interest rates on their loan. If you are in active duty, in the reserves, or you are married to someone who is, this could be one of the best bad credit loans for first time homebuyers as its down payment and interest options are most favorable to you.

Finally, there is a subprime mortgage loan option, which is specifically for the first time homebuyer with bad credit. A subprime mortgage is a type of loan granted to those with poor credit, often with scores below 600, who, as a result of their poor credit score, would be unable to qualify for other types of mortgages. Since those with poor credit history present a higher risk to mortgage lenders, candidates for subprime mortgages are charged high interests rates than the prime lending rate. Although a subprime mortgage will cost borrowers more in the long run, it is a good option for someone with bad credit who has few other options for a home loan.

Advice for Home Buyers with Bad Credit

If you know you have bad credit and are certain that you still want to purchase a home in the near future, the best advice to take to heart is to plan ahead and try to improve your credit score by producing some positive credit history. And then, before you apply for any of the above-mentioned mortgage loans, make a concerted effort to reduce your regular monthly expenditures and keep them steady; doing this will help you better afford your new mortgage payments in the long term once you are approved, and set you up for a problem-free home buying process.

Popular Articles:

How to Improve Your Credit Score

How Much House Can I Afford?

Buying a Short Sale Property

Homebuyer's Checklist

4 Tips for Managing Your Budget

Mistakes to Avoid When Selling a House

How to Flip a House

Share this:


Leave a comment:

* Login in order to leave a comment. Don't have an account? Join for Free

Wheeler David

Thank yâ??all so much for offering so much information! My wife is a veteran. We have really done a few doozies on both our credit reports. We have been trying to raised our scores to 750 and above

... More

Sarah Walker

If only everyone could feel the joy in my heart! I just got approved for a mortgage loan of $195k and it is third or fourth time that I get denied. My credit scores was about under 700 but more than

... More

wee hack


... More

cloud jose

Hello everyone this is a chance to get verified and legally approved internet financial help
Get a genuine and affordable finance ASAP
finance at 2% and with fair conditions
contact me

... More

smith loans

SMITH LOAN SOLUTIONS give out loan at the rate of 3% interest rate, if you are interested for a loan, you are here by advise to fill and return the loan application form to this Email (

... More

Allan Stern

Hi, Great review!...My wife and I are looking to buy our first home. I own a small business that just took off this year and my wife has a steadily increasing income. We both wanted to get a home so

... More

About The Author

Based in Middleton, MA, Steve is a licensed agent and also part-time...

Phone: (978) 337-0233

View Profile

Become an Expert Contributor

Have some knowledge to share, and want easy and effective exposure to our audience? Get your articles or guides featured on Mass Realty today! Learn more about being an expert contributor.

Learn More