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Buying a Home With Bad Credit

Is buying a home with bad credit possible? Zero in on what you need to know to make such a mortgage a reality by reading below.

Have you experienced bankruptcy or gone through a foreclosure? Perhaps it was necessary to sell your home through a short sale.

Then it's likely you don't have stellar credit, unless of course it's been over 10 years, the time it takes for the credit bureaus to drop some of these items off your report.

With the worldwide mortgage meltdown, many of us are left out in the cold. What can we do? Well, buying a home with bad credit is possible, but it may cost you dearly. So what should you do?

I'm glad you ask, because you are not alone. I want to help you since we all know that we still need a roof over our heads.

buying a home with bad credit info

FHA Bad Credit Home Loans

Ideally, you may have to rent for 2 years after going through foreclosure. Renting can offer you a chance to regain your credit standing. Having 24 months of rental history with the same landlord, you now have a small history that a lender can use to qualify you for a mortgage.

After 24 months you may be able to obtain an FHA home loan with as little as 3.5% down. Also the FHA mortgage offers you the opportunity to use down payment assistance, grants or even sellers concessions. The total sellers concessions to be used is up to 3% of the purchase price.

If you wait 36 months, you can be considered a first time home buyer again. Now you can qualify for all those special financial programs offered to them.

FHA interest rates are normally a little higher than the conforming loans, but since we're buying a home with bad credit we expect to pay slightly more anyway. After all the lender is taking somewhat of a risk on us. The US Government is going to guarantee the loan to the lender so the risk is smaller than normal.

Perhaps its a short sale you have on your credit. Some have seen their scores rise in a few months. Depending on what the lender required you to do to qualify for the short sale.

What do I mean? Well, some had to go 30 days late once or even twice before the former lender would allow a short sale. These lates can make it take a little longer. Although over time they do count against you less and less, as long as you don't accumulate more!

You can find more bad credit home loans available with FHA. Why is that? They are more lenient when it comes to credit, so you will want to investigate your options with a lender who offers their products.

Hard Money Lenders

If it's been about 6 months after your foreclosure, you may be able to use one of these.

You will pay a lot higher interest rate with these guys! You might as well look at them as loan sharks because basically that's what they are. They know you're in a tough spot buying a home with bad credit and will take advantage of it.

I've seen people who will lend money on homes at rates of 15% and more. Furthermore, they want you to put a large down payment on the home, perhaps as much as 20%-35%. The terms will not be that good, you'll find pre-payment penalties and it will likely be an adjustable rate loan.

Avoid this option if at all possible. They are the worst bad credit home loans choice.

Some states offer owner financing which is another way to buy a home even with bad credit. Check with your state to see of owner financing where they give you the deed is available.

Why would the owner be willing to do this? They earn more interest than they would having the money in the bank. Thus both you and the seller can benefit. Of course the interest rate will be higher than other mortgages.

So you see it is possible to get a loan when you have bad credit.

Sub-prime Bad Credit Home Loans Option

Before the mortgage crisis, you could find sub-prime lenders offering 100% financing for those buying a home with bad credit. Now most of them have gone out of business.

Of course the interest rate is higher with sub-prime loans, but not as bad as the hard money lenders. They do not offer 100% financing so you will still need a good sized down payment. Likely it will be 10%-30%.

Once again, although this is an option, it's not that good of a one if you're still trying to get on your feet.

Conforming Loans

The lowest interest rate available will be the conforming loan. This mortgage is for those with clean and unblemished credit, no bankruptcy or foreclosures on their report.

So this is what you really want to aim for, so how can we do that?

Well, it will be a slow process but you can do this.

I know one person who was able to buy a new condo within 18 months after filing bankruptcy. It was not a conforming loan that he got but it was an Alt A loan which is just one step below. The interest was decent, about .75% above the conforming rate.

Boost Your Credit Score

Go out and get yourself a new credit card after filing your bankruptcy. Don't worry, it's not as hard as you may think. Lenders know you cannot file again for a bankruptcy for another 7 years so they will take a chance. Also, you no longer have any debt so it should be fairly easy to get some unsecured credit started.

If for some reason they hesitate, get a secured credit card first, then after using it for a few months go back and apply again.

Now start saving up for your down payment. I would try and save at least 10% just in case your score rises above 680. Keep all your payments on time, stay on your job and keep your focus.

Within a short period of time you'll be buying a home with bad credit even though it has not been 10 years since your problems began.

Your credit score affects the interest rate you'll pay in a big way. Even though you may find sub-prime lenders that finance homes with a 580 score, you will still find it hard with the high interest rate and unfavorable loan terms or down payment requirements.

Buying a Home With Bad Credit Summary

With the understanding of how our credit score affects our interest rate, we can begin making our plans for the future. Personally, I think the FHA home loan option is the best way to go when buying a home with bad credit.

It will require discipline no matter how we look at it. You'll recover, don't worry. Just create your plan and work it!

Need More Answers....

Are you wondering what the FHA program is all about? Read the FHA Home Loans to understand more what they have to offer.

Understand the various types of programs out there by reading Home Buying Programs, so you can investigate the best choice for you.

Do you have questions? Have a Question is a great place to find answers or ask those questions you are pondering.


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