To buy a house with credit report issues, first dispute inaccuracies on your credit report through the Fair Credit Reporting Act (FCRA). Next, improve your credit score by paying down debts, reducing credit utilization, and maintaining a consistent payment history. Consider securing a co-signer or opting for loans designed for lower credit scores, such as FHA loans or non-prime mortgages. Budget for a larger down payment or mortgage insurance to offset higher interest rates. Finally, consult a housing counselor or real estate agent experienced in working with credit-challenged buyers.

The steps above are critical because credit score inaccuracies can lead to unfair denials of mortgage approval. According to the Consumer Financial Protection Bureau (CFPB), approximately 20% of U.S. consumers have errors on at least one of their credit reports, which may lower their scores and increase borrowing costs. Disputing errors can raise scores by up to 100 points, as shown in a 2021 Federal Reserve study. FHA loans, requiring a minimum credit score of 500 (with a 10% down payment) or 580 (with 3.5%), are accessible to borrowers with damaged credit, offering lower down payments than conventional loans. However, these loans impose mortgage insurance premiums (MIP), typically 0.5–1.5% annually. Non-prime mortgages, available for scores below 620, average interest rates of 6–12%, per LendingTree data, reflecting higher risk for lenders.

Aim to reduce debt-to-income (DTI) ratios below 43% to qualify for most mortgages, as mandated by Fannie Mae and Freddie Mac. For example, paying off $10,000 in credit card debt could lower DTI by 5–10%, improving loan approval chances. Additionally, mortgage insurance (PMI or MIP) costs decrease as credit scores improve. A 2022 Urban Institute analysis found that borrowers with scores above 700 pay 50% less for insurance than those below 600. Proactive credit repair and strategic loan selection are essential to mitigate higher interest rates and fees while achieving homeownership goals.