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A home represents a large financial purchase for U.S. consumers. Last year, the national median home sales price was roughly $386,000.
Based on the price, most consumers must finance a home purchase through a mortgage loan. Those with bad credit might struggle to qualify for a mortgage or face less favorable loan terms.
Yet, those with stable income and some cash on hand for a down payment will have more options.
How to Buy a House With Bad Credit But Good Income
There are a few things that you can do to buy a house with bad credit:
- Offer a large down payment (10-20%)
- Get a government-backed loan (like FHA)
- Apply to many different mortgage lenders
Consumers with bad credit usually have more difficulty in obtaining mortgage loan approval. So realize that you will have to pay higher interest rates.
What Is Considered a Bad Credit Score By Mortgage Lenders?
Estimates suggest that roughly 90% of lenders use FICO Scores as a basis for decision-making. Credit scores are numeric and range from 300 to 850. The following table shows the approximate ranges.
FICO Score Ranges
| Score Range | Credit Rating |
| 800 to 850 | Excellent |
| 740 to 799 | Very Good |
| 670 to 739 | Good |
| 580 to 669 | Fair |
| 300 to 579 | Poor |
Source: FICO
The three major credit reporting bureaus are Equifax, Experian, and TransUnion. These organizations compile any reported information from lenders that form your credit history. FICO and VantageScore then use the credit history data in their scoring calculations.
Some lenders may only report to one or two of the credit bureaus. For this reason, a consumer might notice variations in their credit score. In these scenarios, lenders might make decisions using the median or average credit score of each credit bureau.
According to Experian, mortgage lenders might also look at models according to guidelines. For example, those specified by Fannie Mae or Freddie Mac, which regulate government-backed options.
Is It Possible to Buy a House With Bad Credit?
Buying a home with a low credit score is sometimes difficult–but certainly possible. As with any large purchase requiring financing, checking your credit is a key first step.
Consumers may receive a free copy of their credit report each year. This is an excellent starting point for a couple of reasons.
First, you may identify errors in your report that are hindering your score and correct them.