Financial challenges can happen to anyone, but they don’t always prevent you from owning a home. Here are some tips for buying a home, even if your finances aren’t in the best shape.
If your credit could use some work
Credit checks can give aspiring homeowners lots of anxiety, especially if their credit score isn’t what they’d like it to be. That’s because lenders use your score to gauge how well you’ve managed debt in the past, which influences pricing and mortgage approval.
As intimidating as that process may feel, there are plenty of homebuying options for most people’s situation. One of the most popular comes from the Federal Housing Administration, or FHA, which offers government-insured mortgages to borrowers with credit scores as low as 580 if they can make a 3.5% down payment . Some other options include:
- VA loans: Mortgages backed by the Department of Veterans Affairs that can help eligible veterans, service members, and spouses of veterans with credit scores as low as 580.
- USDA loans: Most lenders require a 640 or higher credit score along with other USDA eligibility requirements to qualify for these loans backed by the U.S. Department of Agriculture. You’ll need to live in a designated rural area, but you may be able to reap the financial benefits of a no down payment options
- Conventional loans: Private, non-governmental lenders like us offer conventional mortgages that require a minimum 620 credit score and a 3% down payment. You may be able to get a loan with a lower score, but other factors might change, like a larger down payment requirement.
If you can’t afford a down payment
Affording the down payment can be challenging of buying a home, and it’s especially difficult for hopeful buyers entering the market for the first time. If making a down payment isn’t feasible, consider investigating mortgage programs, like FHA, that come with low down payment requirements if you meet other eligibility conditions.
You can also search for down payment assistance programs in your state. These programs, funded by local governments, nonprofits, and even some lenders, offer various grants, forgivable loans, and other financial resources to ease the burden of putting money down on your home. Check with your city or county regarding any eligibility requirements and to see if payment assistance is available. Search for your state housing finance agency to learn whether they offer assistance or select your state on the HUD website for more information on local home-buying programs.
If income is a concern
To qualify for a mortgage, lenders will evaluate your pay stubs, tax returns, cash reserves, and overall financial situation to determine your interest rate and loan amount. Depending on your income, you may consider getting help from the U.S. Department of Housing and Urban Development, which sells foreclosed single-family and multi-family homes to lower-income borrowers. These homes are sold based on fair market value, potentially making them a more affordable option. You can search for HUD homes here.
Fannie Mae and Freddie Mac, two government-sponsored enterprises, also offer programs for buyers unable to afford a 20% down payment. Fannie Mae’s HomeReady program helps buyers finance their homes with loans carrying low rates and lower mortgage insurance costs. Freddie Mac’s Home Possible mortgage includes low down payments, reduced mortgage insurance premiums, and flexible closing costs.
Speaking with a lender is the best way to determine what kind of loan you can afford and whether you qualify for certain programs. Contact a Wyndham Capital loan officer today to learn more about your options.