A guide to buying a home with bad credit

1. Determine how many homes you can buy

Knowing how much you can buy a home allows you to focus your energy on shopping for homes that fit your pocket money.
Consider starting by finding a few basic numbers:

Your total monthly income before tax.Your total monthly debt payments, such as car payments or student loans. This total includes payments to lenders - not bills like cable money or your electricity and water bills.The amount you've saved for a up payment. It is important to note that the lower your credit score, the more money you may need to put in.Nick Demeester, senior housing manager at GreenPath Financial Wellness, a nonprofit that provides counseling and counseling services for various financial matters, said it's important not to pay attention to your other financial goals when creating a home purchase budget.
"Can you still contribute to retirement goals, you can still pay other debt obligations like a student loan or credit card, and do you set aside funds for the annual vacation you want to make?" Demeester asked.
Debt-to-income ratioThe first two numbers can help you determine your DTI rate. Your DTI rate is important to know as this is one of the factors that lenders use to estimate your ability to pay your loan.
To calculate it, take your monthly debt payments (including your future monthly mortgage payment) and divide it by your monthly pre-tax income.

DTI requirements vary depending on the lender and your overall financial situation. Having a DTI of 36% or less is a general rule, but some lenders may approve mortgages for applicants with higher DTI.
Housing cost-to-income ratioThe ratio of housing costs to income is another important proportion. Take your expected future housing costs - including loan payments, taxes, insurance and mandatory fees or associated fees - and divide it by your total pre-tax income.
The general rate rule is 28 percent or lower, but again, there are exceptions.
Keep in mind closing costs when considering your up payment, as they may affect how much you can spend. Closing costs can range from about 2 to 6 percent of the purchase price.

2. Check your credit

Demeester says credit is a huge factor in determining the interest rate you may be eligible for. "We encourage people to review a copy of their credit report before applying for a loan."
You can find free copies of your TransUnion and Equifax credit reports on Credit Karma and you have the right to receive a free credit report from all three offices once a year at dailyCreditReport.com.
Find errors, such as accounts that don't belong to you, or mis-report late payments. You can file a dispute form and if the negative mark is removed, your score may increase.

There may be a side to the disputed accounts. Matt Weaver, vice president of Finance of America Mortgage, warned that some mortgage lenders may require dispute resolution or receding before the settlement.
If you have legitimate negative signs on your credit report, such as late payments, consider sending a letter explaining the situation to your application and asking the lender to review it.

3. Ask someone to co-sign

If you don't think you're going to get approved on your own, then one option is to ask someone else to have a better financial situation than signing a mortgage. This can be your spouse or long-term partner, or a loved one.
Lenders can check credit, income, DTI and other co-signer's degree as part of the application process. Erin Lantz, vice president of mortgages at Zillow, recommends discussing decisions and impacts with financial advisers and mortgage lenders.
However, it also creates a serious financial constraint between you and your co-signer, as both may have an equal share of assets. Your relationship can be strained if you are in financial trouble, as your co-signer is liable for the debt.

4. The lender pledges to shop

Regular loans - those that follow principles that are already and are not part of a government program - are generally best suited for those with decent to excellent credit.
You may be eligible for some inappropriate regular loans if your credit needs are active, but they can have high interest rates, additional fees or additional insurance expenses.
An inappropriate loan does not meet the bank's criteria for funding. Examples of non-compliant loans include large mortgages (where the size of the mortgage exceeds the maximum size of a suitable loan, which is $417,000 in most U.S. counties).
Demeester recommends shopping around interest rates and saying, "Talk to different lenders - at least three people - to see how you qualify for loans and interest rates."
You can seek mortgage offers from banks, credit unions and mortgage lenders, and ask friends, family and local real estate agents for referrals.

You can also hire a mortgage broker to contact some lenders for you. However, you may have to pay a fee for the service.
The Consumer Financial Protection Bureau (CFPB) has a tool that allows you to explore interest rates in your area based on your credit score range. This will help you better understand what the competitive rate might look like for your situation.

5. Consider an FHA-guaranteed mortgage

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), provides assistance to home buyers with a job credit or inability to pre-pay large sums of money.
You can find a HUD-approved housing consultant near you to take a look at all your options.
The FHA does not directly offer mortgages - instead, it guarantees mortgages loaned by FHA-approved lenders.
You can get a FHA-insured mortgage with an up-to-date payment of 3.5% if you have a credit score of at least 580. To be approved with a credit score of 500 to 579, you will need to put 10% down.
There are also other requirements for eligibility for an FHA loan and there is a limit to how much you can borrow based on where you bought and your up payment.

In addition to closing costs, you may have to pay up-to-face mortgage insurance payments - although it can be transferred into your mortgage. You will also have to pay an annual or monthly mortgage premium.
If you don't have a credit score because there isn't enough information in your credit report, you can still get approval for an FHA loan by providing proof of at least three alternative payment hisses - these can include your rent, gas payments , electricity, water, cable or the Internet.

Bottom lineLow credit scores can make it harder to get a mortgage, but there may be options.
However, before focusing on finding a home, determine your budget and review your credit reports to understand why your credit score is low.

If buying a home doesn't fit your pocket money, then it's better to work to increase your score and reduce your DTI rate now and consider buying a home when you have a score that can help you reach a better mortgage agreement.
If you've decided that buying a home is still reasonable right now, consider the benefits and risks of asking someone to co-sign and compare loan options and rates from different mortgage lending programs and government programs.