You call your bank or a large lender on TV and they tell you, “Sorry, your credit score is too low. We require a 600 credit score”.

And if you’re like millions of potential home-owners, you give up your search to buy a home right there.

Years go by while you continue to overpay on rent, while trying to build credit, only to see home values go higher and higher making the American dream of homeownership less and less possible.

It doesn’t have to be that way.

Here are 3 Home Loan options for folks with bad credit:

Option 1: FHA or VA loan down to 500 Credit Score

Did you know that FHA and VA requires just a 500 minimum credit score?

Yet, when you talk to banks and large lenders, they’ll tell you their minimum credit score, usually, 600, or at the lowest 580. This is called an overlay, meaning an additional requirement above what the government requires.

Some FHA and VA lenders have no overlays, which means they will lend down to 500 credit score.

For Veterans, you can purchase with 0% down payment with a 500 credit score.

For non-Veterans, you can purchase with 3.5% down payment with a 580+ credit score, and a only a 10% down payment for a 500 – 579 credit score.

Option 2: Lease to Own 

If you cannot qualify for a mortgage today to purchase a home, we recommend working with a lease to own company.

Here’s how it works:

  1. Qualify with a Lease to Own company. Many will work with credit scores down to 550.
  2. Find your dream home and they buy it.
  3. Rent from the purchaing company and part of your monthly rent goes towards your down payment fund
  4. When you’re ready, Buy the home you already live in

What’s great about Lease to Own programs is that you can test out living in the property before the commitment of owning. And if you the home value appreciates while you’re renting, many Lease to Own companies will enable you capture the appreciation.

We’ve vetted the top Lease to Own companies. Click the link below to be matched.

Option 3: Home Equity Investment 

Option 1 and 2 are great if you’re looking to buy a home, but what about if you already own your home?

If you own your home and want to tap into your equity but have bad credit, one unique option is a Home Equity Investment.

Here’s how a Home Equity Investment works:

  1. Sell a percentage of your home equity. For example, if your home is valued at $500,000 and you sell 10%, then you will receive $50,000. 
  2. Since it’s not a loan, there is no monthly payments. 
  3. You can use the funds to consolidate debt and rapidly increase your credit score. 
  4. You can buy back your equity any time, typically via a refinance or sale. There is no prepayment penalty. 
  5. Your buy-back cost will depend on your home value. The cost will be the amount originally received plus a portion of your home’s appreciation since partnering.

The beauty of the Home Equity Investment program is that once your credit score increases, you can apply for a cash-out refinance to pay off the investor and then own 100% of your home again. 

There’s a lot of Home Equity Investors but is the pinoeer and our recommended company. 

7 Steps to SELFi

Don’t let bad credit prevent you from achieving your financial goals

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