February 25, 2015

How to Purchase a Home Even if You Have Bad Credit

It’s a great time to buy a home! Prices are good, interest rates are low…oh, wait. Your credit sucks. Too bad.

Not so fast! There are ways to buy a home, even if you can’t qualify for a conventional bank loans. There are at least four purchasing methods to be considered if you don’t want to spend the next 24 months clearing up your credit in hopes of qualifying for a home loan.

First, there are bad credit home loans, called subprime loans. In this type of purchase, the mortgage holder charges exorbitant interest rates, payments will be high, and terms will not be favorable. The government set strict limits on this type of loan after the 2008 housing crisis. You must be able to show an adequate income to qualify. This option should be considered only if you don’t find another means to homeownership.

Next, look for a lease purchase home, in which you work with the homeowner for one to two years, paying rent, until you can qualify for a loan. The owner will apply a portion of your rent toward the down payment, but if you go this route, be sure to work with a real estate attorney to ensure you understand all the terms of a lease purchase contract. You and the owner will have to work out all the details, such as who is responsible for repairs, taxes, and insurance during the lease purchase period.

If you have a good down payment, say $10,000, you may find a home that is owner financed. Be sure the details are covered, such as going through escrow so the home is in your name and seek the advice of an attorney. Once your credit has recovered, you can look for a conventional loan.

A good option is to find a home that qualifies for an FHA loan. Your credit doesn’t have be good, but you must have at least 3% down and an income that qualifies. FHA requires that your debt to income ratio, including the proposed house payment, not exceed 40.35% of your income. These loans offer interest rates comparable to a conventional loan. This is a very attractive program for first time home buyers, and young people recently out of school.

The American dream of homeownership is not out of reach just because your credit sucks. Start the process today by working with a real estate agent to what kind of programs you might qualify for. Your dream can come true!

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