Can You Buy a House with Bad Credit?

by Julie Peebles

Life happens. Sometimes when it does, it’s your credit that suffers and it can be a challenge to find a lender to give you a break. We’ve put together life’s little instruction book on how to buy a house with less than perfect credit.


Consumers are allowed to obtain a free copy of their own credit report once every year (here). When you receive it, check it over carefully for discrepancies. Make sure any items you have paid off are reflecting as paid and/or zero balances. Double check the accounts that are reporting balances are yours and are reporting accurately.

Need help reading your credit report? Call a loan officer.


Focus on non-medical collections first. Your credit report should have the phone numbers of each collection agency listed; call them and make payment arrangements. Sometimes they have a settlement policy if you’re able to pay the account off all at once they will take a portion of the collection balance and settle the account as paid in full.

Note: medical collections are not as damaging in a lender’s eyes as other collections are.

Find the Public Records section of your credit report (usually towards the end) and see if you have any liens or judgments showing. These must be paid in full.


Whether you’re renting or buying, it is vital to have at least a full 12 months of on-time payments in your current home and other bills. The rule of thumb is to avoid any 30-day-late payments reporting to credit (or a landlord) for at least 12 months.

woman saving money in piggy bank


Consumers with credit challenges are often required to provide a larger down payment towards the purchase of their home. In addition to this, you could be required to have up to 3 months’ reserves saved as well. Reserves means you have enough money set aside to make your principle and interest payments on the home you’re buying.


Keep your checking account balanced. Frequent overdraft fees can look bad when attempting to rebuild credit. There are any number of tools available to help keep track of your money from traditional paper checkbook registers to online access to mobile apps.


Finally, rebuilding your score may not as hard as you think. While saving up your down payment, talk to someone at your local financial institution about taking out a pledge loan.

Pledge loans allow you to use money you already have in savings and borrow against it for a lower rate than a personal loan. You then pay yourself back and, over the course of time, re-establish your credit with on-time payments. Qualifying for a pledge loan is often much easier than any other type of loan because you’re using cash to secure it.


Whether your goal is to buy now or start the process of getting ready so you can buy later, contact our loan officers today.


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