Can You Buy A House With An Eviction?
Your landlord or property management company can evict you from your home if you stop paying rent or otherwise violate your lease agreement. Eviction is the legal process a property owner uses to force a tenant who violates their agreement to move out. In addition to losing your current home, an eviction can make it more challenging to rent or buy a home in the future. Here’s how an eviction can affect your credit and homebuying plans and how to rebound after an eviction.
Key Takeaways:
- Unpaid rent leading to an eviction damages your credit score and can stay on your credit report for up to seven years.
- Having been evicted makes it more difficult to get a home loan or to get one with favorable terms.
- If you’ve been evicted, you likely need to rebuild your credit before you can buy a home.
How An Eviction Affects Your Credit
An eviction damages your credit score significantly. While the eviction itself won’t be listed on your credit history, any unpaid rent and charges your landlord has reported to collections will. Because your payment history makes up 35% of your credit score – more than any other factor – collections for late or unpaid rent can reduce your score by as much as 100 points.
If your eviction case goes to court, you could end up owing your landlord money in a judgment, which is also reported to credit bureaus and can further reduce your credit score.
How Long Does An Eviction Stay On Your Credit?
Any debt sent to collections will stay on your credit report for seven years. Any legal judgment against you in eviction court also stays on your credit report for seven years.
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How Does An Eviction Affect Your Ability To Buy A House
Because eviction does so much damage to your credit score, lenders and creditors likely will see you as a high-risk borrower when you try to rent an apartment or apply for a mortgage. Lenders who find collections for unpaid rent or an eviction on your credit report will likely deny your application.
However, credit scores are not set in stone. While a reduced score from an eviction may prevent you from buying a house in the immediate future, you can rebuild your score over time to the point where you can qualify for a mortgage.
Here’s one common scenario: Say your credit score is 580, which is too low to get a conventional loan but good enough to qualify for a Federal Housing Administration loan as long as you can make a 10% down payment. But then, you lose your job, fall behind on paying your rent, and your landlord evicts you. Your credit score falls 100 points to 480. At this point, your credit score effectively disqualifies you from getting a mortgage.
But you find a new job and a way to save enough money for a down payment on a home. If you are still able to get approved for a home loan with an eviction dragging down your credit score, expect to pay more for your loan as the lender likely will impose less favorable terms, such as:
- A minimum down payment of at least 10% to 20%.
- A higher mortgage interest rate.
- A higher monthly mortgage payment.
- A shorter loan term.
- Additional closing costs.
“An eviction does affect your ability to buy a home, especially if it’s recent,” says Dan Reedy, a Realtor, investor, and property management company owner in Kansas City, Missouri. “Lenders look at your credit, and while an eviction itself doesn’t always show up, the unpaid rent or judgment tied to it likely will. That can lower your credit score and raise questions for lenders.”
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How To Recover From An Eviction And Buy A Home
While an eviction damages your credit score, you can move past it, but it will take time. How long after an eviction can you get a mortgage? There’s no hard rule – it depends on how long it takes you to rebuild your credit and save for a down payment. At a minimum, it takes seven years for unpaid rent or bills related to an eviction to be removed from your credit history.
Here are some steps to take to bounce back from an eviction.
“Evictions can feel like the end of the road, but I always tell people they’re just a hurdle, not a brick wall,” Reedy says. “From my experience managing properties and working as a real estate agent, I’ve seen how evictions can show up on your credit report and damage your rental history. But with the right steps, it’s absolutely possible to move past it and become a homeowner.”
Pay Your Debts
The first step is paying off your debts to your former landlord and collections agencies. It can help to formally document this resolution in a written agreement with your landlord or property management company. Once you’ve paid these debts, you can ask the collection agencies to remove them from your credit report.
Improve Your Credit
Repairing your credit and increasing your credit score takes time, but it can be done. Paying off your debts will help, as will:
- Paying your bills on time.
- Using as little of your credit as possible.
- Keeping open unused or paid credit lines.
- Disputing errors on your credit report.
- Diversifying the types of credit you have.
“One of the best tips I can give is to focus on repairing your credit and building a relationship with a trusted lender,” Reedy says. “If you’ve been evicted, start by paying off the judgment tied to the eviction if there is one – it shows good faith. Then, work on building a positive payment history, whether it’s through credit cards, rent, or utilities. A strong pattern of reliability can go a long way in convincing lenders to give you a second chance.”
Document Financial Stability
The name of the game is to show a lender that your financial situation is stable enough to afford monthly mortgage payments. Gather documentation that shows you have a stable income and enough savings to afford a home.
“Lenders are looking for progress,” Reedy says. “If you can show you’ve taken steps to recover – like paying off debts, building up savings, or improving your credit – they’re much more likely to work with you.”
Save For A Down Payment
One way to compensate for a low credit score is to make a larger down payment. For example, a borrower with a credit score of at least 580 can get an FHA loan with a down payment of 3.5%. If your score is between 500 and 579, you still can get an FHA loan with a larger down payment of 10%.
Be Honest
If you’ve been evicted, it’s helpful to be fully transparent. Lenders often appreciate a borrower’s honesty. Plus, it allows you to show how your financial situation has improved since then.
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Alternative Ways To Buy A Home If You’ve Been Evicted
If you’ve been evicted in the past and you have been unable to get a home loan, don’t give up. Here are some other ways that you may be able to buy a home.
Build A Strong Rental History
Your rental history isn’t always on your credit report. However, some landlords and property management companies report rent payments to credit bureaus to encourage tenants to pay on time. While this can hurt your credit score if you have late payments, it also means that paying your rent on time can help your credit score.
Consider An FHA Loan
If an eviction has knocked your credit score below 620, you won’t be eligible for a conventional loan. However, that doesn’t mean you’re out of financing options. FHA loans are backed by the government and are available to borrowers with credit scores as low as 500. Because FHA loans are insured by the government, lenders can loosen the eligibility requirements. FHA loans can be a helpful option for borrowers with a lower credit score and a smaller down payment.
“For someone bouncing back, I think FHA loans are a great option,” Reedy says. “They’re designed for people who’ve had financial setbacks, with lower credit score requirements and down payments starting at 3.5%.
Look For A Rent-To-Own Arrangement
A rent-to-own home agreement is a contract between a renter and a landlord that outlines how the tenant can purchase the home at a future date. If the tenant pays the landlord an upfront fee, they get exclusive rights to buy the property. From there, the renter will pay a little more each month in rent, with a portion going toward a down payment.
“Lease-to-own arrangements can also work, but you’ve got to be careful,” Reedy says. “It’s crucial to fully understand the terms and work with someone you trust to avoid predatory deals.”
Apply For Down Payment Assistance
If your credit score is less than 580, many lenders require that you make a down payment of at least 10% to get an FHA loan. If you’d originally planned to get a conventional loan, you may only have a 3% down payment saved up. The good news is that state and local governments and nonprofit organizations offer down payment assistance programs. If you find yourself scrambling to come up with a larger down payment to meet that 10% threshold, these programs may help you come up with the cash. You can search for down payment assistance programs in your area using this tool.
FAQ
Here are answers to some frequently asked questions about evictions.
The Bottom Line
How does an eviction affect buying a house is a difficult question to ask. Being evicted damages your credit and makes buying a home challenging. However, nothing about being evicted prevents you from rebuilding your credit and savings to the point where you can buy a house. It won’t happen quickly, but with consistent work, you can buy a home after an eviction.
