Being a First Time Home Buyer with Bad Credit

If you are a potential first-time home buyer with bad credit, there are many things that you will need to consider before purchasing a home. While the process may be a little more difficult and more expensive, you can still purchase your first home if you are willing to complete the necessary steps. Here are a few things to consider about being a first-time home buyer with bad credit.

Finding Lenders

Perhaps your biggest obstacle will be finding a lender that wants to work with you. Typically, the market for first-time home buyers is very competitive with lenders. Lenders have a number of programs, and they want to get as many people into the market as possible. However, when you have poor credit, it may be difficult to find a lender that has a program for you. This does not necessarily mean that you will not be able to find a lender. It just means that you may have to apply with several lenders before you find one that is willing to bite. Keep applying with multiple lenders and keep trying regardless of how many times you are turned down.

Large Down Payment

As a first-time home buyer with bad credit, you may have to come up with a larger down payment than you would ordinarily be required to make. A large down payment limits the amount of risk that the lender has to take on. The lender may require you to make a down payment as high as 20 percent. Depending on how bad your credit is, some lenders might ask for even more of a down payment. 

Interest Rate

When you have bad credit, you will find that the interest rate that you can get will be high. Charging a high interest rate is another way that a lender can protect itself when dealing with individuals who have bad credit. The interest rates that you see quoted online with various lenders will most likely be lower than what you can get as a first-time home buyer with bad credit. 

FHA Lenders

If you are a first-time home buyer and have questionable credit, you may want to look at some of the options that the Federal Housing Administration lenders have to offer. The FHA is a government program that insures loans for certain lenders. These loans are great for first-time home buyers because the government is essentially standing behind your mortgage. If you default on the mortgage, the FHA will step in and repay part of the loan for the lender. This makes it easier to get approved. These loans also have lower down payment requirements and lower interest rates than what you can find in the rest of the market. In most cases, you will be required to come up with a down payment of only about 3 percent of the purchase price. 

Grants

You may also qualify for first-time home buyer grants. These grant programs provide you with free money that you can use for your down payment. Many of these grants are offered on a state level and do not have to be repaid.

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