What exactly is bad credit? Let's start with the lower end of generally accepted credit scores* for borrowers. If your credit score sits below the 600 mark, you'll have a difficult time getting a first time home buyer loan. As you inch towards a 620 FICO score, your "borrower risk" begins to fall in the eyes of most lenders. 640 and above and you're getting into the safe zone for most loan options. So, what does this mean for people with bad credit? It means it's time to work on bringing that FICO credit score up, up, up.
First, you need to understand there's no quick-fix to credit problems. Regardless of the reason (and we all have valid, real reasons when it comes to credit history hiccups), a low score is seen as a risk to lenders. The only real thing that will lower that risk is time and effort, which will show that you're a responsible consumer who pays his or her bills.
Also, understand that a bankruptcy, a foreclosure or a short sale in your recent history will affect your credit score and your chances and finding any kind of first time home buyer loans. A short sale will keep you from getting a mortgage for 3 years. Bankruptcy: 2 years from the discharge date (depending on some factors).
Now, let's look at how you can begin to repair that credit. Two of the biggest steps are A) paying your bills on time and B) bringing your balances down. As far as paying bills on time, this goes for all of your bills, every month, for a year. This is where patience comes into play. Next, your balances. Credit card balances should not exceed 30% of the limit. In other words a $10,000 limit credit card should have less than $3,000 charged on it. Read more about repairing your credit in the article First Time Home Buyers and Credit: 6 Mistakes to Avoid.
The bottom line is that you won't find any magic first time home buyer loans for borrowers with bad credit. It takes patience and effort. Want to learn more about getting your credit mortgage ready? Download "The Road to Mortgage-Ready Credit" at the button below. The free eBook walks you through the factors that make up your credit score, ways to protect yourself and other information. Get your copy today!
(bad credit: Flickr user Natloans)
*these numbers are not intended to be hard and fast numbers, as loan programs do not generally have minimum credit scores, and they are to be used as a guideline