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Ultimate Guide: 7 Steps On How To Buy a House with Bad Credit


Do you feel ready to buy a home but don’t feel like your credit is good enough? Are you worried about buying a house with low income and bad credit?

How To Buy A House With Bad Credit 2019

Do you have good income but not so great credit?

Contrary to popular belief, there are ways to purchase a house with bad credit, with good or bad income.

Before I decided to buy a home, I thought buying a house required near perfect credit, a sizeable down payment, and impressive income.

After researching topics like how to buy a house with bad credit, I discovered that buying a home is possible for many people. It just might take a little grit.

If you find yourself hoping and wishing for your dream home, it is worth looking into, even if your credit isn’t quite where you want it, or you feel like you don’t make enough money. You may be as surprised as I was.

This guide will help you through the process of preparing to buy your house with little to no credit, no matter your level of income.

What You Need for This Tutorial

Once you have decided to start looking into purchasing a house, it is easy to get carried away with all of the potential choices. If you have a low credit score, the home-buying process is different, and often takes more work, than people with a high credit score.

When you are ready to start researching houses, there is research you can do, and steps you can take to help you get ready.

Here is a look at the measures you will need to complete before applying for loans or looking at homes:

    • Your Credit Score
    • Dispute inaccurate information
    • Maximize your FICO score
    • Type up explanations for troublesome areas
    • Consider your expectations
    • Get pre-qualified
    • Research low down payment loans like FHA and USDA
    • Improve financial situation where you are able
    • Find an Agent
  • Start looking for houses


There are alternative options to consider when buying a home

how to buy a house with bad credit 2019

Pay Cash for a House

While this may seem impossible, there are ways to reduce your monthly outflow of money to start saving cash to purchase a house.

If you can afford the cost of a car payment, driving a paid off car gives you the chance to take the amount of your car payment and put it into an interest accruing savings account to start the process.

After you have an established bank account, you can add unexpected financial windfalls and tax returns to your account, and it will quickly increase.

To learn more about how to pay cash for a house, read this article.

Secure Seller Financing

In some situations, seller financing can be an option. There aren’t many sellers who are interesting in making payments on their house; however, it does happen sometimes.

You may have to pay more in interest and come up with a down payment; seller financing is sometimes the right option for people.

There are several different types of seller financing, like lease options, mortgages, contract for deed, or rent-to-own, but rent-to-own is typically more common.

When you decide to enter a seller financing situation, finding a house where the payments are close to what you pay in rent, and allows you to have extra money to save, can not only help you get into your dream house quickly.

Tt also will help you save money to pay off the house faster.

Buy a Mobile Home

Purchasing a mobile home can have a lot of advantages, like being more affordable, and helping you get into a home you own more quickly.

Looking into purchasing a mobile home, you can choose between paying cash, securing a loan, or doing seller financing.

Most of the time, rent, and mortgages at mobile homes is cheaper than buying a home.

One of the most significant advantages of buying a mobile home is that you can have a beautiful space for a lower cost than houses that are similar.

Borrow from Your Family (Not Highly Recommended)

If borrowing from a family member is an option, you will have more of a say on the terms of the loan and your ability to pay it back. In most cases, it would be an interest-free loan, and your family would know you and your financial situation more than a bank.

It’s rarely an option, but for those who can borrow from family, this is an excellent way to own a new house, with more relaxed loan conditions.

Step by Step Instructions for Buying a House

If none of the alternative methods appeal to you or work in your situation, these are the steps you need to take, no matter your income, to buy a house.

buying a house with bad credit and no money down

Step 1: Obtain Your Credit Report and Credit Score

While there are free sites, like Credit Sesame or Credit Karma, that offer credit monitoring and reporting, before buying a house it is essential to pull your credit report from all three of the major bureaus, Experian, TransUnion, and Equifax, and to pull your FICO credit score.

Once a year, you can pull your credit report from each bureau for free. To get your report, you will visit and click on the red button that says “Request your free credit reports.” After that, you will find a page with a 3-step instruction on requesting your reports. The site is user-friendly and straightforward to navigate.


After getting your credit report, you will also want to get your FICO credit score. It is essential to start with getting your credit reports and your credit score, so you can look for discrepancies to dispute and start making a plan for improving your return.

Free credit monitoring sites do not use FICO scoring and instead use VantageScore. Both FICO and VantageScore are typically pretty close; however, most lenders use FICO.

While it is not as simple to get your FICO score for free, there are a few ways you can.

Once you have your credit score and all three of your credit reports, you are ready to start the process of checking your reports.

Step 2: Dispute Inaccurate Information

Mistakes on credit reports do happen, and they are more common than most people realize. When you print your credit reports, it is necessary to look at every detail carefully.

Highlight incorrect information and then you should dispute the discrepancies.

By law, credit agencies have to investigate all complaint within thirty days.

To report a discrepancy, you have the option to dispute online or to write a formal letter to the company who is reporting inaccurate information. Writing letters is very inexpensive and, if successful, can significantly improve your credit score.

Here are some of the frequent inaccuracies you can dispute:

    • Credit inquiries you didn’t approve or initiate. This can happen if someone is applying for a loan and the agency type the wrong social.
    • Bills that should have fallen off your report after seven years.
    • Bills that have been paid off or are back to being paid on time that hasn’t been corrected on your credit report.
    • Incorrect addresses, name spellings, or bills that are not yours.
  • Inaccurate balances owed.

While you can report discrepancies online, I personally prefer submitting disputes by mail. I do this because I want to provide supporting documentation and because I like to have a paper copy of my file.

When you are preparing your dispute, it is crucial to include as much supporting information as possible. Here is what you need to know.

    • Send copies of your documents and keep the originals. In the envelope, include your formal letter, a copy of your credit report showing the highlighted inaccuracies, and any supporting documents that prove the inaccuracy.
    • When you mail your letter, make sure to pay for a return receipt so you can track when the agency receives your letter.
  • While you are working on a dispute, you will most likely not be able to qualify for a mortgage unless you can show the lender fraudulence on the disputed account.

The process of disputing inaccurate information on a credit report is usually completed quickly. While you are waiting for answers, there are other things you can do, like maximizing your FICO score.

Step 3: Maximize your FICO Score

buying a house with bad credit and low income

Before you ask for a loan, it is essential to get your FICO score as high as possible.

After disputing discrepancies, you can look over your report for credit accounts you can pay down and collections accounts that can be removed.

Your debt-to-income ratio is a significant determining factor in loan eligibility.

Credit cards or other credit accounts that you can put extra money toward to pay down, that will help increase your credit score.


If you have collections accounts, you can reach out to your creditors and offer to pay the debt in exchange for them deleting the collection account off your report.

Unfortunately, paying off collections accounts will not increase your credit score unless the company removes the account from your report.

Collection agencies are under no obligation to delete, even with the debt  being paid in full, and many agents will not offer pay for delete.

However, you can also reach out to the original company where the debt was accrued to see if they would agree to remove it.

Once you have to work on maximize your credit score, you are ready for the next step.

Step 4: Type Explanations for Troublesome Areas

Once you had disputed inaccuracies on your credit report and maximized your FICO score, if you still have troublesome debt that remains, you can type explanations for your troublesome areas to submit to a lender when you are working on securing a loan.

If there were extenuating circumstances, you paid the loan off, or you tried to dispute, type those letters and keep them.

At this point, you are finished with your credit report, and you can now start working on the next steps to purchasing your house.

Step 5: Get Pre-qualified

Getting pre-qualified for a loan is a good idea because it helps you and your realtor know the price range of houses you can look for.

If you are worried about your credit score, there are federal mortgage programs that have lower credit standards than other places.

FHA Loans

The Federal Housing Administration is government-backed and available to help people with lower income, some credit hiccups, and a small down payment secure a home loan.

Here are some of the best features of the program:

    • You are only required to have a 3.5 perfect down payment.
    • You can have lower credit than conventional financing allows.
    • You can have most or all of your closing costs covered by the seller.
    • You don’t have to have extra money available in your bank after you close on the loan.
  • You can have a co-signer if wanted or needed.

If you are interested in FHA loans, you can visit the FHA website to get started.

VA Loans

VA loans are available to Service members, Veterans, and eligible surviving spouses. The loans are provided by private financial institutions. Their benefits include purchase loans, interest rate reduction refinance loans, native American direct loans, adapted housing grants, and many other state-level resources.

If you are a veteran, service member, or surviving spouse, looking into a VA loan is a good option because there are a lot of resources available to help.

Once you are pre-qualified for a loan, it is time to find an agent.

Step 6: Find an Agent

Once you have been pre-qualified, it is time to look for an agent. There are many ways to look for an agent, like:

    • Family or friend who is an agent.
    • Asking for recommendations from your family and friends.
    • Reading reviews online.
  • Calling local agencies.

Finding a good agent is important. A good real estate agent will be available to help you walk through all the stages of the home buying process while being an advocate for your wants and needs.

They will help the process go smooth.

Step 7: Start Looking for Houses

At this point, you have made all decisions about how you are going to finance and purchase your home, you have been pre-qualified for a loan, and you have found an agent.

This step will most likely feel exciting and fun, especially if you can find your dream home relatively quickly.

While there are some potential frustrations, like inspections and seller requests, your real estate agent will be there to help you along the way.

Here’s A Little Bonus Vid:

Income Variations: How To Buy A House With Bad Credit

It does matter, but not as much as most people think. Here is a little more information about the differences between good income and low income.

Good Income

If you are looking to buy a house with bad credit but good income, there are still ways you can secure loans.

With good income, not only can you save more for a down payment, but you can also potentially pay off some debt to make sure your debt-to-income ratio is good.

Many lenders will consider financing loans if you have compensating factors.

Having a good income and a good job is a great place to start. Being able to show you have the financial resources to pay your mortgage goes a long way. Here are a few compensating factors that can also help you:

    • No, or very little, payment shock. If your mortgage would be considerably higher than your current rent, lenders will be leery about financing your loan. Instead, if your mortgage payments would be equal to, or less than, your current lease, you would have almost no payment shock. Lenders consider this.
  • Large down payments. The more money you can put down on the house, the more likely you are to be approved, no matter what your credit is. Lenders look at higher down payments as you are putting more value and incentive into your home, which means you are more likely to make your mortgage payments a top priority.

Low Income

Discovering how to buy a house with bad credit and low income does take more work, but can sometimes pay off. There are some lenders who are willing to work with people who have low income and bad credit to help them buy a house.

Alternative options, like doing a rent-to-own are more achievable when you have low income and bad credit; however, there are circumstances where people can get a loan.

If you have money in savings and can pay a high down payment, you have a better chance of being approved.

When you want to buy a house, there are endless resources and pieces of advice to help you along the way.


I hope this tutorial is helpful and can guide you through the process of purchasing your first home. When I was looking to buy a house, I had to do a lot of research to get the information I was looking for.

I created this tutorial with the desire to give you step by step instructions, with link resources, for what you will need to buy a house.

I am curious to hear what you think. Drop a comment to let me know, and please share the article if you liked it.

The process to buy a home can be stressful, but this tutorial will help you on your way.

Additional sources:

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