Once you get your financing together, you may qualify for Federal Home Administration (FHA), Section 203(k) loans that can incorporate your mortgage and rehabilitation expenses in one loan.
Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with.
So, to take advantage of some of the great mortgage programs, you have to start by improving your credit score.
It is unlikely you could be approved for mortgage financing with that credit score at this time.
Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website. http://consumer-action.org/
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.
I think that Tony makes some great points about working with a quality mortgage planner. If my team was working with you we would first want to know why you want to buy a home and why now? Then we would review your credit to discover why it is so low. At the same time we would review your employment, debts and assets to develop a good understanding of who you are both emotionally and financially. Once we review everything we will then discuss your short terms goals and long term planning strategies and set a plan in place to improve your credit scores preferably in the 720 range with a target date to buy a home. Hopefully this helps and please seek out a local person to work with and donâ€™t make snap decisions through an online broker.
When you get below a 620 credit score, it is not so much the score itself that can hurt your chances of getting a mortgage, but rather the REASONS your score is that low. Like Luke said, technically you could get a loan with as low as about a 500 score, however if you have a lot of late payments and collection accounts you will likely be denied. Think about it this way: Why would a bank lend you $100,000 for a house if you can't even pay a cell phone or utility bill?
If you have a low credit score then you have to show some strengths to offset the score, such as a large down payment (30% or more) or a long time on your job combined with a strong pattern of savings.
You should strive to have at least a 720 credit score because that will qualify you for the most programs and the best rates. If you've spoken with a lender already and all they've said is,"your credit score is too low to qualify" then do yourself a favor and talk to a good lender who, even if they can't qualify you, is going to tell you WHY your credit is too low to qualify and who will advise you on what to do to get in shape to buy a home. Feel free to call me and I can take a look at your situation and point you in the right direction.