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How to Buy a House with Bad Credit



Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Having bad credit is challenging, but it doesn’t mean you can’t qualify for a new home loan. Instead, bad credit usually means you won’t be eligible for the best interest rates and terms.

Even if you can buy a house with bad credit, it’s important to educate yourself on the homebuying process.

In this guide, we’ll help you understand what you have to do to buy a house when you have a low credit score, and the steps you can take to set yourself up to get better terms in the future.

Can I buy a house with bad credit?

It’s possible to buy a house with bad credit, but there are caveats. For one, you may not be eligible for all types of mortgage options, particularly those with the lowest interest rates and most favorable terms — those typically go to people with good credit scores. Or the lender may require a larger down payment.

In addition to meeting credit history, income, and debt-related eligibility criteria, you’ll usually have to meet a lender’s minimum credit score qualifications as well. You can learn about lender requirements and compare mortgage rates from multiple lenders with Credible.

What’s a bad credit score?

Using FICO’s scoring model, here are the factors that make up a credit score.

  • Payment history: Your history of paying current and past credit accounts as agreed makes up 35% of your FICO credit score.
  • Credit utilization: Credit utilization is the amount of available credit you’re using. If you’re using most of your available credit, lenders may think you’re overextended and at risk of defaulting. Credit utilization accounts for 30% of your credit score.
  • Length of credit history: This credit score factor is worth 15% of your FICO score. It takes into account the average length of time your credit accounts have remained open. Generally, high credit achievers have longer credit histories than those with lower credit scores.
  • Credit mix: Your credit mix, which accounts for 10% of your credit score, refers to the types of different credit accounts you have — credit cards, personal loans, auto loans, mortgages, and so on.
  • New credit: When you apply for new credit, hard inquiries can impact your credit score for 12 months.

When you’re shopping for a new mortgage, you may see advertisements that mention borrowers with “good” or “poor” credit. But what do these terms mean?

Most credit score ranges include …

  • Excellent: (750 and above)
  • Good: (700 to 749)
  • Fair: (640 to 699)
  • Poor: (less than 640)

Generally, the minimum credit score you’ll need to qualify for a conventional mortgage is 620, according to Fannie Mae. But you may be eligible for a Federal Housing Administration (FHA) loan with a minimum credit score of 580 and a 3.5% down payment. The FHA provides some loans to borrowers with a 500 FICO score, but the agency requires 10% down in that situation.

What to know about buying a home with bad credit

It’s helpful to understand what lenders are looking for on mortgage applications. Here are some general eligibility guidelines to consider.

    • How much down payment you need: Depending on the lender, you may be able to snag a home loan with a minimum of 0% or 3.5% down. The more down payment you have, the more creditworthy you’ll appear to lenders.
    • Debt-to-income ratio (DTI): Lenders usually look for a debt-to-income ratio of less than 50%. The lower your DTI ratio, the more borrowing options will be accessible to you.
    • Private mortgage insurance (PMI): If you can put 20% down, you can usually avoid paying private mortgage insurance, saving you significant money over the lifetime of the loan.

<liLoan to value ratio (LTV): The loan amount compared to a home’s current market value affects the interest rate you’re offered. For example, if your LTV is on the higher end, you may receive higher interest rates. That’s because you might appear riskier to lenders if you have less equity in your home.

Types of mortgage loans for people with poor credit

Consider these types of mortgage loans, which could provide a pathway to homeownership, even if you have bad credit.

    • FHA: FHA loans are government-backed mortgages with easier credit qualifying guidelines. With a median credit score of at least 580, you may be able to qualify for a mortgage with a 3.5% down payment.
    • VA: The Department of Veterans Affairs insures VA loans for military veterans, active-duty service members, and their spouses. The VA doesn’t impose minimum credit requirements, but individual lenders may set their own requirements.
  • USDA: The U.S. Department of Agriculture backs these 0% down loans for low-income applicants in eligible rural areas.
  • Conventional: Generally, conventional loans are much harder to qualify for than government-backed loans. But some mortgage lenders offer their own in-house programs to make it easier to qualify first-time buyers.

How to buy a home with bad credit: 7 steps

If your credit score is less than you’d like it to be, you could work to improve your score and shore up your financial profile to give yourself more loan options and the opportunity to save money.

Here are seven steps you can follow to improve your chances of getting approved for a mortgage loan.

1. Check your credit. You may know your credit is bad, but looking at your report and score can help you identify opportunities for improvement. On top of that, a 2013 Federal Trade Commission study revealed that 20% of consumers had one or more errors on at least one of their credit reports. You’re entitled to free copies of your credit report once a year from the three major credit bureaus — Equifax, Experian, and TransUnion.

2. Get prequalified. Prequalification can help you understand how much home you can afford, and it shows lenders you’re a serious buyer.

3. Save toward a down payment. Although some loans for poor credit may not require a down payment — such as USDA loans — having a down payment can be a big advantage. A down payment of 20% or more could help you avoid PMI, and help lenders and sellers view you as less of a risk. Plus, making a down payment ensures you have instant equity in your new home.

4. Comparison shop. Shopping around can help you find a loan that works best for you. Credible can help you compare mortgages from multiple lenders.

5. Research first-time homebuyer programs. If you’re a first-timer, programs are available to help with down payment assistance and other aspects of homebuying.

For example, many lenders accept Fannie Mae’s HomePathⓇ Ready Buyer Program for first-time homebuyers, which Fannie Mae defines as someone who hasn’t owned a home in the past three years. Eligible borrowers may receive up to 3% in closing cost assistance.

6. Get pre-approved. A mortgage loan pre-approval is a more rigorous and accurate assessment of your buyer qualifications than a prequalification. a A pre-approval reassures sellers that you’ll likely be able to secure a mortgage when you make an offer on their house.

7. Work with an experienced agent. A real estate agent experienced in working with first-time buyers or lower-income buyers can help you navigate the home- buying process.

Pros and cons of bad credit home loans

Just because you can get a mortgage with bad credit, it doesn’t always mean you should. Buying a home with bad credit can have a positive effect on your credit if you’re able to manage monthly mortgage payments and other expenses, or a bad one if you can’t juggle all your financial obligations.

Pros of bad credit home loans

  • May improve your credit: Consistently paying your mortgage on time every month could improve your credit.
  • Owning is often cheaper than renting: Your monthly rent payments help the landlord cover their mortgage, which means you may be paying more than the property is worth, or the difference may be minimal.
  • Owning a home builds equity: When you own a home, you have an asset that increases your net worth. And with every monthly payment, you’re building more equity in your home.

Cons of bad credit home loans

  • May harm your credit: If you become overextended and unable to make payments on time or miss payments, your credit score could drop significantly.
  • Higher mortgage rate: Generally, borrowers with bad credit pay more for the same loan amount, which could add up to tens of thousands of dollars in interest over the long haul.
  • Difficulty covering other home expenses: If your monthly income means you have a tight budget, a bad credit home loan could leave you stretched too thin to cover repair costs, homeowners association fees, and other home-related expenses.

Alternatives to buying a house with bad credit

Buying a home with bad credit isn’t your only choice. Consider these three alternatives to getting a mortgage loan.

Wait until you can improve your credit

Rather than applying for a mortgage loan with a potentially unfavorable interest rate, you may find it worthwhile to push the pause button. You can then work to improve your credit score.

Making consistent on-time payments can help improve your credit. Paying off credit card balances to reduce your credit-utilization ratio may also help your credit score. And, until you’re ready to apply for a mortgage, avoid opening new credit accounts that you don’t need.

Consider a cosigner

A cosigner with good credit might help you qualify for a better interest rate and terms. Help protect your relationship with your cosigner by setting clear expectations from both parties before accepting any money.


A rent-to-own arrangement with your landlord can help you become a homeowner. Typically, you’ll pay a premium in addition to your monthly rent. The extra money goes into an escrow account and ultimately becomes your down payment.

However, these agreements are often very complex and are risky in several ways. As with any financial arrangement, make sure you do your due diligence to understand the benefits and risks.

When you’re ready to look for a mortgage, Credible makes it easy to compare rates from multiple mortgage lenders.

About the author

Tim Maxwell

Tim Maxwell is a financial writer with over two decades of experience. Tim’s work has appeared in USA Today, Washington Post, Bankrate, LendingTree, Fox Business, Credible and more. He also publishes Incomist, a personal finance site that focuses on paying off debt by earning extra income in creative ways.

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Are Sallie Mae Student Loans Federal or Private?



When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances



Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit



Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.



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