Buying a house with bad credit can be a challenge, but it is possible. Some buyers rule themselves out of owning a home due to a low credit score and limited cash for a down payment. We hope this article helps you see there are ways to become a homeowner, even if you have bad credit or little money down.
This article answers questions like:
- What is considered a ‘bad’ credit score?
- Can a first-time homebuyer buy a house with bad credit or no money down?
- What is the lowest credit score to buy a house in Wisconsin?
- Can you buy a house with bad credit but a good income?
- How to improve your credit?
- What should you not do if you’re trying to buy a house?
What is a Credit Score?
A credit score is a prediction of your credit behavior. Credit scores are a tool mortgage lenders use to predict how likely you are to pay your loan back on time.
The FICO score is commonly used among lenders, and it is any credit score provided by the Fair Isaac Corporation. Another fairly common scoring model is the VantageScore.
Applicants with a higher score are predicted to use credit wisely, while applicants with a bad credit score are seen as more of a risk.
How to Find Out My Credit Score?
While many online articles will send you to online credit monitoring companies to check your credit score, lenders have warned that this is not the best option to get an accurate score.
FICO scores can differ depending on what type of application is applied for. Meeting with a lender to pull an accurate report is the best way to get your actual credit score and answer questions.
The only true way to know your credit score is to apply for a mortgage with a trusted lender. FICO scores can differ depending on what type of application is applied for, so the scores we see online from credit monitoring companies and our credit cards aren’t usually accurate.
–TORI WOOLLEY, Loan Officer @ Summit Credit Union
What is Considered a Bad Credit Score?
FICO scores range between 300 and 850, and scores between 300-570 are considered poor.
FICO scores are broken down into five categories:
- Poor = 300-579
- Fair = 580-669
- Good = 670-739
- Very Good = 740-799
- Exceptional = 800-850
Can You Buy a House with a Poor Credit Score?
Yes! Some individuals can do it right away, while others may need to take steps to build their credit first.
There are many different lending options and house assistance programs today that can help make owning a home possible–even if you have a bad credit history.
Is a 500 Credit Score Enough to Buy a House in Wisconsin?
FHA has set a minimum FICO credit score of 500, but it requires a 10% down payment and it’s difficult to find a lender who can approve applicants with a score around 500.
If you want to qualify for an FHA loan with a 3.5% down payment, your FICO credit score must be at least 580. It’s more common to find a lender who can approve a mortgage for someone with a credit score around 580. We share a bit more about FHA loans in Wisconsin below.
The minimum score varies among lenders, so talking to several lenders can help you find the best financing option for your credit score. Here is a list of our tips for picking a good lender and our top loan officers.
Do I Need 20% Down to Buy a House?
No! It is a myth that you need 20% as a down payment to buy a house.
Many of our clients bought houses in Wisconsin without a 20% down payment, so be encouraged there are other options if you want to buy a house but don’t have 20% in cash, such as special grants, government loans, and down payment assistance programs.
Can First-Time Home Buyers Buy a House with Bad Credit?
First-time home buyers often believe they can’t buy a house because they have bad credit. Thankfully, there are home buyer grants and government loans to consider.
Check out your local resources to see what housing assistance programs are available for you. Our main office is in Jefferson County, Wisconsin, so we will link to several housing programs in our area, but these are likely available in your area too!
Jefferson County Home Buyer Grants
Down Payment Plus Program
The Down Payment Plus Program in Jefferson County offers grants that do not need to be repaid up to $10,000. Your total debt-to-income ratio cannot exceed 45% without special bank approval.
Home buyers must contribute at least $1,000 toward the purchase of the property, so although you’d need to come up with some money, we all know coming up with $1,000 is a lot easier than $50,000 or more!
HOME Consortium Down Payment Assistance Program
Another option in Jefferson County is the HOME Consortium Down Payment Assistance Program. This grant is for up to $10,000 and your total debt-to-income ratio cannot exceed 50%.
There are income and other requirements for these programs, which you can learn more about here.
Home buyer programs are something you should check out if you’re concerned about buying a house with bad credit or little money down.
FHA Loans
FHA loans are another popular loan choice for first-time home buyers who have low credit scores or want a lower down payment.
If you want the lower down payment option of 3.5%, you’ll need a FICO credit score of 580 or higher. If you have a credit score between 500 and 580, you’ll need a 10% down payment. These down payments can be gifted by a family member.
Note: Your home will have to go through a home inspection and appraisal, but if bad credit is a concern, an FHA loan is one way to make your dream of owning a home a reality. Hopefully, you are working with an awesome local real estate agent to help guide you through all of these necessary steps.
Learn more about FHA loan requirements.
WHEDA Programs
There are several programs available through the Wisconsin Housing and Economic Development Authority (WHEDA), including First Mortgage and Down Payment Assistance Programs.
Through WHEDA, home buyers may also be able to finance a down payment. If interested, ask a trusted lender about a down payment assistance program.
Learn more about WHEDA programs.
Shine Realtors are eager to continue learning to better guide clients to home ownership. Below Amy Fosdick of Bank of Sun Prairie tells Shine Agents about WHEDA’s Home Ownership Programs.
How to Buy a House with Bad Credit but Good Income
If you have a good income, the odds of buying a home increase greatly, even if you have bad credit. You may just need to find a good lender who has more flexibility in the loan approval process.
Professionals Program
Johnson Bank, for example, has a unique Professionals Program for individuals in certain career fields:
- Residents
- Fellows
- Physical Assistants
- Nurse Practitioners
- Nurse Anesthetists
- Anesthesiology Assistants
- Veterinarians
- Optometrists
- Certified Public Accountants (CPAs)
- Attorneys
- Physical Therapists
- Pharmacists
- Chiropractors
People in these fields may qualify for a zero-down payment loan with fixed-rate terms.
The Professionals Program is a great option to consider for buying a house even if you have a low credit score or no down payment.
Contact Diane Rue from Johnson Bank to learn more about this unique home buyer program.
- Phone: (920) 568-5641
- Email: drue@johnsonfinancialgroup.com
Shop Around for the Right Mortgage Lender & Program
Mortgage lenders are not all the same, and the loan products they can offer are not all the same. Many lenders have in-house programs that offer more flexibility than conventional or FHA programs.
Taking the extra time to connect with a few mortgage lenders to find the best loan options for your situation will be time well invested.
Tips from Mortgage Loan Officers for Home Buyers with Poor Credit
“Meet with a lender early on even if you know you’re not ready yet. Having an accurate picture of where you are currently and where you want to be can help you plan the steps you need to take and a timeline to get you in a house, instead of wasting time and money guessing.”
–TORI WOOLLEY, Loan Officer @ Summit Credit Union
“Low credit scores almost always will be an FHA loan. If you have troubled credit and feel it’s an error, it’s important to talk to us so we can dispute the errors and get your credit score up in a timely manner.
–TRAVIS ROMENS & DAN “THE MORTGAGE MAN” O’BRIEN, Loan Officers @ Educated Mortgage Services
DON’T Do These Things if You Want to Buy a House Soon
Some things can hurt your credit and chances of getting approved for a loan. So if you’re looking to buy a house soon, avoid doing these things, if possible until after you’ve purchased your home:
- going self-employed (lenders like to see at least two years of steady income)
- switching jobs
- taking out a car loan, boat loan, camper loan, etc. as these lower your debt-to-income ratio
How to Improve Your Credit Score Before Buying a House
Here are some ways you can increase your credit score. A higher credit score typically increases your chances of getting approved for a home loan.
Check Your Credit Report for Errors
Credit reports are not perfect, so it’s a good idea to periodically check your credit report for errors that may be harming your credit score.
Sometimes a simple correction on a credit report can be all you need to raise your credit score high enough to get that home mortgage.
“Once we dispute the errors and corrections are made, we can do a rapid re-score and that score should increase. Reach out to a lender and we will advise on your options, how to get your credit in line, and set a timeline and expectations on how the process will go.”
–TRAVIS ROMENS & DAN “THE MORTGAGE MAN” O’BRIEN, Loan Officers @ Educated Mortgage Services
Make Payments on Time and Pay Off Debt
The best way to build your credit if a higher score is needed to get a loan is by making your payments on time and pay off your debts. Credit cards, vehicle loans, and other debts can be the hurdle that’s standing in your way of buying a home.
“Paying off debts and keeping your balance at or below 30% of the credit line will help credit scores go up.”
–TRAVIS ROMENS & DAN “THE MORTGAGE MAN” O’BRIEN, Loan Officers @ Educated Mortgage Services
Make a Monthly Budget
Finding the cash to pay off debts and build your credit might mean making a monthly budget–and sticking to it. Here are some tips about how to make a budget for beginners. Sometimes just being more intentional with where your money goes is all it takes to improve your credit.
You Can Buy a House Even With Bad Credit or No Money Down
There are likely other loan programs and grants available too; these are just several examples of how to make buying a home more affordable for people with all kinds of credit scores and incomes.
So don’t your credit history or lack of money stop you from pursuing the dream of owning a home.
If you’re renting or living with family and don’t have a house to sell, it’s good to know your offer can be more appealing to sellers than someone who has to sell their house first in order to purchase the new one.
Contact our office today and we can help connect you with a good lender for your unique situation.
Additional Resources for Buying a House in Wisconsin
- Buyer’s Guide – A FREE Guide to Buying Your 1st Home
- 15 Frequently Asked Questions about Buying a House
- 10 Questions to Consider Before Buying Land
- 7 Unusual Ways to Afford Buying a House in Wisconsin
- 5 Real Estate Apps Realtors Recommend (That Are Not Zillow)
- What to Do if Hail Damages Your Home
- Downsizing Tips to Help You Downsize Your Home
Share With a Friend
If you know someone who thinks they can’t buy a house because of poor credit history, share this article with them. With some of these unique programs available, perhaps they can get into a house sooner than they thought.
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This post was originally published in 2023 and updated in 2024.