The easy answer is that you don't need credit at all to buy a house. You need money. Unfortunately, most people don't have an extra couple hundred thousand lying around and must obtain a mortgage loan in order to afford real estate.

Many people want to buy a home, but don't think they can get a mortgage loan because they have low credit, no credit, or bad credit. To buy real estate, you need to have decent credit, but the FICO (Fair Isaac Credit) score is not the only factor that determines your credit worthiness to get a mortgage loan. If you have a credit score of atleast 600, you can probably get a loan. If your credit score is higher than 720 you will most liikely qualify for the best rates assuming you match the other lender requirements. FHA loans technically do not have a minimum Fico credit score. They factor in all aspects of the loan worthiness to determine approval.

Debt to Income Ratio

The debt to income ratio is a very important factor lenders consider when approving mortgage loans. They don't just want to see that you have a proven track record with paying your bills, they want to see that you have the income to support the mortgage loan. The general rule of thumb is that lenders will allow a 35% total debt to income, and of that debt, 28% of it can be for the mortgage. So, if you don't have a lot of consumer debt, credit cards, car payments, student loans, etc..you have a can afford a more expensive house payment. In reality, many FHA loans and other Fannie Mae and Freddie Mac programs will allow debt to income ratios at close to 50%. These amounts vary by the are you live in and the actual income you have. Talking to a mortgage lender can give you specific details about the debt to income requirements for specific loan products.

If your debt to income ratio is too high, you will not be able to buy a house even if you have an 800 fico credit score.

People with lower credit scores, but good income to debt ratios, and a decent down payment can usually still obtain a loan through sub-prime or private lenders, but they will have to pay for it. The rates will be substantially more expensive than traditional loans. Most hard money loans are in the double digit variety. These rates nearly double the monthly mortgage payment.

Home buying options for people with bad credit

If you have bad credit, try to fix it as soon as possible. Credit is fixed by having debt and paying it on time, and in full all the time. FHA loans will allow borrowers to obtain loans two years after bankruptcy with a minimum 620 credit score If FHA loans are not obtainable, it is still possible to buy a house with bad credit by using Rent to Own, Lease Options or Seller Financing.

Lease Options and Rent to Own Financing

Lease options essentially work like this. You negotiate with the seller to rent the house from them up until a certain date. At that date, you will have your credit restored and will obtain a mortgage loan and buy the property from them free and clear. Lease options usually require a substantial, non refundable, down payment/ security deposit (Usually 5-20%). If the option is exercised, then that down payment goes towards the actual purchase of the house. If it is not exercised, then the leasor forfeits the down payment. Sometimes a portion of the rent in rent to own financing goes towards the purchase of the house. This percentage will be deducted from the actual purchase price.

Seller Financing

With seller financing, the seller actually becomes the bank. Your mortgage and terms are set with them and you pay them a set interest rate for a set period of time. Very few seller financing options are available as most owners aren't able to offer owner financing as it would trigger a due on sale clause on their mortgage loan, and if they don't have a mortgage of their own, they may not want to take the risk to offer owner financing. With that said, there still are options out there to buy real estate by using seller financing. Some of these options even require little or no credit history, and no money down.