Buy a House with Bad Credit is possible now.
The Americans Dream. Get a great job, save up, and buy that home with the white picket fence.
Unfortunately, when your credit score is less than ideal, the dream of homeownership can seem impossible. After all, don’t banks want perfect credit scores and low debt loads?
They do, but you don’t have to give up on the dream of home ownership just because of bad credit. There are lots of ways to make home ownership a reality even if your credit isn’t the greatest right now.
Let’s take a look at five ways you can own a home, even with bad credit.
This isn’t the quickest of solutions, but it is one that will make the bank stand up and take notice.
When banks look at a mortgage loan, they aren’t looking only at your credit score. They consider income, debt load, expenses, and down payment. All those things are weighed together to determine eligibility.
Basically, if you know you have bad credit, you can counterbalance it by having a large down payment ready to go.
Saving for a down payment isn’t easy and can take a few years, but by setting a budget and saving extra money that comes your way, you can put together and a large lump sum to tip the odds in your favor when it comes to loan qualification.
One step beyond a big down payment, you could avoid the bank altogether and just pay cash for your home.
This works especially well for people who fit the following criteria:
This isn’t a quick solution, but if you have five to seven years and are willing to stick to a strict budget and put aside all the extra money that comes your way (from tax refunds or what have you), you can put aside enough in a few years to buy a fixer-upper or manufactured home.
You may find that buying a home with cash makes your offer more attractive to prospective sellers. Accepting a cash offer makes the closing process simpler and shorter, and can often avoid the appraisal process, making the prospect very attractive to sellers.
This should be done in conjunction with any other strategy you decide to use.
When banks consider you for a loan, they are looking at your “entire package”, from income to debt load, and it’s in your best interests to look as attractive as possible to a potential lender.
If your credit at the moment isn’t great, it is worthwhile, in addition to saving up a large down payment, to work on repairing your credit. There are a few ways to do this, but doing so will serve two purposes.
Repairing your credit can take a few years, so keep in mind that this is a long-term solution. It may also require several strategies, from better debt management to debt settlement, depending on how much debt you carry and your financial situation.
If you don’t have the time or don’t want to wait to save up a huge down payment or buy a house cash, you might look into a private mortgage.
Occasionally, a seller may be willing to carry your mortgage themselves, especially if you are currently renting the property you are looking to buy. If your landlord owns the house outright, they may be willing to negotiate sales terms with you without the hassle of going through a bank.
In seller financing, you may be able to buy the house with a smaller or no down payment. That said, your interest rate will probably be higher, and you may have a balloon payment built into the terms.
You should also expect that your seller will not hold your mortgage for the lifetime of the loan. Most sellers financed mortgages are eventually sold to mortgage buyers. This wouldn’t change the terms of your loan, but it is something to be aware of.
FHA loans are a bit different from a standard home loan because they are insured by the Federal Housing Administration.
This allows lenders to charge lower interest rates, require lower down payments, and lend to those with lower credit scores.
You do have to qualify for an FHA loan, and make sure you go through an FHA-approved lender (Remember, the Federal Housing Administration doesn’t furnish loans, it just ensures them), but for those with less-than-perfect credit, and FHA loan may provide a solid path to home ownership.
When your credit score isn’t great, it’s easy to get discouraged. It’s even easier to give up on the dream of owning your own home.
But the truth is, home ownership can be within your grasp. It may not be easy, and it may take a little longer to get there, but you CAN do it.
By working to improve your credit and Debt Reduction Program, you will be holding the keys to your own home in no time.