If you have no credit or poor credit, you may think that home ownership is not possible for you. The good news is that while it may be more difficult, if you work at it, you are able to own your own home with nearly any credit score. However, you may also find that there are other options that are a better fit for your situation. 

Many people believe that if they don’t have stellar credit scores, they shouldn’t even look into owning their own home. While improving your credit should be a priority, if you have a credit score above 500 you may not have to wait to purchase your home. 

Improving Your Credit Score

Taking small, simple steps to improve your credit score can drastically improve your chances of getting a better home loan. There are easy ways to quickly improve your credit score such as: 

• Make payments on time - by making consistent, punctual payments, your credit score will continue to increase over time. You don’t have to pay your credit cards off in full (although that should be the goal!), but you do need to make at least the minimum payments due each month. 

• Check your credit report for accuracy - it is free to dispute a collections account that has errors or inaccuracies. Disputing accounts that are incorrect is one of the fastest ways to increase your score. 

• Open a secured line of credit - if your credit score is so low that you are unable to qualify for loans or unsecured credit cards, a secured line of credit is a great way to boost your score significantly. 

Increasing Your Down Payment 

While you may qualify for a loan with a low- or no-down payment option, the more you are able to save for your down payment, the better. When you increase your down payment, you not only lower the amount you will have to pay in interest over the life of your loan, you also may qualify for better terms.

FHA Loans for Bad Credit 

FHA loans are insured by the Federal Housing Administration, and they are the most common type of home loan for people with low credit scores. There are many perks to using FHA loans, such as a possibility of a lower down payment, but they also come with restrictions and requirements. 

There are many different types of FHA loans, but most people are only familiar with the most common Basic Home Mortgage Loan 203(b). FHA loans are capped based on the cost of living of the county you are buying a home in, and using FHA loans strategically can sometimes mean avoiding a turnkey home, and choosing a property that may need some work. There are several types of FHA loans that finance both the cost of the property and the costs to build or improve your home with a single loan. 

VA Loans 

If you or your spouse is an active duty military member or has previously served in the military, you may qualify for a VA loan, which can be a wonderful option for a wide variety of credit scores. Although many VA loans require no down payment, you also don’t need to pay private mortgage insurance, because the loans are backed by the government. VA loans have very specific requirements, so it is best to talk to your financial institution about your options and which homes qualify. 

Unconventional Home Buying Options 

If you have exhausted all of the conventional options available to you, but you are still unable to secure a home loan, there are unorthodox ways you can achieve the dream of becoming a homeowner. Many people choose to rent to own their homes, which allows the option to buy the home before the end of the lease agreement. Renting to own can be a complicated process which allows for people to take advantage of the confusion the agreements may cause. You will want to use more caution when deciding on a rent to own agreement, since it is between you and the owner of the property, rather than a financial institution. 

Rent to own agreements are nearly as varied as the properties they represent. Sometimes there are significant upfront fees, sometimes a portion of the rent goes toward the down payment or principal, and like any other lease, you should carefully read the specific terms and conditions outlined in the document. The consistencies in rent to own agreements are: 

• A purchase price should always be agreed upon up front, and the terms should include how and when the renter must exercise their option to buy.  

• The amount of the rent that applies to the principal is always stated explicitly in the agreement. 

• Whether the renter can build equity regardless of their choice to buy should be clearly written into the agreement; in some cases you are able to cash out your equity if you back out, but in most rent-to-own agreements, if you decide against purchasing, you will lose all the money invested up until that point. 

Rent to own agreements are often a solution for people who are self employed, don’t have a down payment saved, have poor credit, or have other roadblocks to obtaining a more traditional mortgage. While they are a great option for many, it is usually a good idea to hire an attorney to read over any paperwork, and make sure the terms are fair and in your best interest. 

There is No “One Size Fits All” Solution 

Nearly anyone can become a homeowner, but every person’s individual circumstances are going to determine which option is the best path for them to take. Creative solutions and perhaps even an unconventional approach may be needed in order to reach your goals. If you aren’t sure what option is a good fit, speak with your financial institution to get a better idea of where you stand.