So you want to be a home owner? First off, how does your credit look? During our current economic state, it’s hard for people with excellent credit to get a loan, let alone people trying to obtain a bad credit home loan. For example, my friend recently tried to obtain a $7,000 dollar loan from the bank. He had a 730 credit score, a good job and no history of financial hardships. Even with a squeaky clean credit report, it took my friend over a week to obtain this loan. He had to show the bank three quarters worth of pay stubs and other various forms of documentation just to get a measly $7,000 loan. If my friend had this much trouble getting a simple car loan, how do you think people with bad credit can get a home loan?

For most people, they want to end up as a home owner and do not want to rent for the rest for their lives. However, many people suffer from poor to bad credit and might have a tough time obtaining a loan. For those that earn a lot of money and have good credit, getting a home loan won’t be a problem. People with bad credit are going to have a much harder time trying to get a home loan. Just like a bad credit mortgage refinance, the reason why these people will have a hard time obtaining a mortgage is because banks and lenders see these people as high-risk and think that they will have a much higher chance of defaulting on their mortgages. Because of these risks, lenders will either not accept these people are take on the risk by asking for a higher interest rate. If you have poor credit, do not fear as there are still plenty of options for you to get into the house of your dreams.

So what is considered a bad credit score when trying to get a home loan? Generally, a score below 620 will put you in the “bad” category and anything above 620 is considered “good”. There are other factors that will be considered when placing you within a category and your credit report will be scrutinized for such characteristics such as income, job history, late payments and other delinquencies. If you are curious about your credit score you can obtain a free credit report through Experian. You are limited to one free report per year. You can also go to 3 in 1 credit score companies, however these companies charge around $25 per month and usually are not worth the high costs.

There are companies that specifically focus on home loans for people with bad credit. If you are indeed a person with bad credit, you can either go for a bad credit mortgage loan or a bad credit home equity loan. The first type of loan is for first time home buyers that have adverse credit. Remember, since you are considered a high-risk (for default) customer, you will have to pay a much higher interest rate than people with excellent credit. Typically, expect to pay an average of 10% or more for bad credit mortgages. Interest rates vary depending on your credit score and history. Before trying to get a home loan, try and increase your credit score as even 1% can make a huge difference on monthly mortgage payment. If you already have some equity in a home and have bad credit, you can always go for a home equity loan. Home equity loans are usually taken out when people need some cash but do not want to take an unsecured loan out of their bank or from other lenders. Typically home equity loans have better rates than unsecured loans as the loan is taken against your house. Remember, you will have had to have built equity into your house before you can take out a loan. Also, you can try for a governmental loan such as a FHA, VA or Rural Housing Service loan. Generally governmental loans have lower interest and down payment requirements; however, you will have to meet specific guidelines. People with bad credit might have a better chance obtaining one of these types of loans. Also conforming loans might be good for people with bad credit because there are various categories of loans that one can qualify for such as a “B” or “C “category loan offered by Fannie Mae and Freddie Mac.  Whatever you do, do not panic and lose hope. There are options available for people who have bad credit such as trying to obtain small business loans for women with bad credit.  Lenders will generally look at other factors besides your credit score when determining what type of home loan you can receive.