1. Home

Video:How to Buy a Home if You Have Bad Credit

with Nick Jaynes

Want to know the limitations of buying a home if you have bad credit? Here, see helpful information about the process.See Transcript

  • All Videos
  • All Home Videos
  • Home Buying/Selling Videos

Transcript:How to Buy a Home if You Have Bad Credit

Hi I'm Nick Jaynes for About.com and this is "how to buy a home with bad credit." I'll be using information from the home-buying guide site on About.com.

About Buying a Home if You Have Bad Credit

Most people believe if they have gone through bankruptcy, foreclosure or if you just have bad credit, you won't be able to buy a house. This simply isn't the case, but you will pay more for a house than someone who has good credit.Filing bankruptcy usually means a seven-year wait before you can buy a house. Some hard-money lenders might give you a loan six months after filling bankruptcy, but you will have to put 20 to 30% down on the house. The interest rate will also be very high.

Improving Credit to Buy a Home

There are ways to improve your credit so you can get a fair rate, and buy a new home sooner. The first thing to do is obtain a major credit card. Bankruptcy gives you a fresh start, and using a credit card will slowly enable you to build better credit. Second, show steady employment for one or two years. It is best if it is not self-employment. Third, save a down payment of at least 10% of the house you are looking at. Fourth, pay your bills on time, and avoid any late payments.If you know your credit score here is a quick breakdown according to your FICO score. This breakdown is assuming you did not file bankruptcy or foreclosure, and you are putting a 10% payment down.

More Information About Buying a Home if You Have Bad Credit

FICO Score of 600-640 + 1.625% over prevailing rate. This means a borrower with good credit is paying 5.875%, your interest rate would be 7.5%.A 200,000 loan at 7.5% would give you a monthly payment of 1,398.Now let's compare that to someone with bad credit, with a FICO score under 500 + 6.25% over prevailing rate. Your interest rate would be 12%. You would not qualify for a 90% loan, and have to put more money down to get a different loan. Your monthly payment on a 200,000 loan would be 2,057. If you did file bankruptcy you would typically pay an additional 200 dollars per month.

If you aren't satisfied with the rate from a lender, you may want to look at buying a home with seller financing. Land contracts are a viable alternative. It offers no qualifying, lower interest rates, flexible terms and fast closing.

Thanks for watching if you'd like to learn more please visit us on the web at About.com
About videos are made available on an "as is" basis, subject to the User Agreement.

©2014 About.com. All rights reserved.