If you have a history of bad credit, the idea of buying a home might seem out of your reach. Bankruptcy, foreclosure, unpaid credit card bills… none of those seem to be the kind of things that lenders want to hear about. And they aren’t. But still, if you’re trying to purchase home with bad credit, know that it is possible. While it might be more difficult and might cost more than if you were to have a pristine credit history, it can still be done.
The first step in securing bad credit mortgages is to know just how bad your credit is. Specifically, whether you’ve had a bankruptcy or not. And if you have had a bankruptcy, whether that included a foreclosure or not. Lenders take foreclosures very seriously, and will be a lot less likely to give you a mortgage if you have one in your credit history.
But there are thousands of couples that manage to purchase homes with bad credit history that includes both bankruptcy and foreclosure. One option is getting an FHA loan. If you go this route, you will have to wait some time. The waiting period after a bankruptcy is two years; if you have had a foreclosure it will be three years.
When applying for an FHA loan, its not so much your actual credit score number that will make the difference, but what is behind that number. Your credit report will be carefully scrutinized to see what the reasons for your poor credit are, and those reasons will determine whether you will receive the loan or not.
If you are unable to get approved for an FHA loan, then there are a couple other options for you to consider. These are often overlooked by people who are trying to figure out how to purchase a home with bad credit, but they are options you should think about. These are seller financing and lease-options, both of which are a step away from the more traditional “take out a mortgage” solution. While these two options are often confused as being one and the same, there are some basic differences.
When you are buying a home that is seller financed, you are basically taking your mortgage out from the seller instead of a bank or other financial institution. In a lease-option, you are renting the home, but you have an agreement that states that you may buy the house at a certain date, for a lower price than it would normally sell for. While you can back out of the deal, you will have to pay a penalty if you don’t buy, which is usually around $10,000.
If your bad credit history does not include a bankruptcy or foreclosure, you will be in much better shape. You are very likely to get approved for an FHA loan, which is most likely the best route for you to take. If you are not approved, you can try to get a bad credit mortgage from a bank. Since you don’t have a major deterrent like bankruptcy or foreclosure behind you, most banks won’t have a problem giving you a loan.
There is one thing that you should consider though. If you do take out a bad credit home loan, you will end up spending a lot more in interest than if you had a better credit score. It may be very much worth your while to work on increasing your credit score so that you can obtain a mortgage at a better interest rate.
So can you purchase a home with bad credit? Yes, you most definitely can. Whether you simply have a low credit score or have gone through bankruptcy or foreclosure there are viable options you can choose to become the owner of your own home. You will need to decide which is the right path for you, be it an FHA loan, a seller financed home, lease option, bad credit mortgage, or simply waiting a bit of time and working on improving your credit score.
The first step in securing bad credit mortgages is to know just how bad your credit is. Specifically, whether you’ve had a bankruptcy or not. And if you have had a bankruptcy, whether that included a foreclosure or not. Lenders take foreclosures very seriously, and will be a lot less likely to give you a mortgage if you have one in your credit history.
But there are thousands of couples that manage to purchase homes with bad credit history that includes both bankruptcy and foreclosure. One option is getting an FHA loan. If you go this route, you will have to wait some time. The waiting period after a bankruptcy is two years; if you have had a foreclosure it will be three years.
When applying for an FHA loan, its not so much your actual credit score number that will make the difference, but what is behind that number. Your credit report will be carefully scrutinized to see what the reasons for your poor credit are, and those reasons will determine whether you will receive the loan or not.
If you are unable to get approved for an FHA loan, then there are a couple other options for you to consider. These are often overlooked by people who are trying to figure out how to purchase a home with bad credit, but they are options you should think about. These are seller financing and lease-options, both of which are a step away from the more traditional “take out a mortgage” solution. While these two options are often confused as being one and the same, there are some basic differences.
When you are buying a home that is seller financed, you are basically taking your mortgage out from the seller instead of a bank or other financial institution. In a lease-option, you are renting the home, but you have an agreement that states that you may buy the house at a certain date, for a lower price than it would normally sell for. While you can back out of the deal, you will have to pay a penalty if you don’t buy, which is usually around $10,000.
If your bad credit history does not include a bankruptcy or foreclosure, you will be in much better shape. You are very likely to get approved for an FHA loan, which is most likely the best route for you to take. If you are not approved, you can try to get a bad credit mortgage from a bank. Since you don’t have a major deterrent like bankruptcy or foreclosure behind you, most banks won’t have a problem giving you a loan.
There is one thing that you should consider though. If you do take out a bad credit home loan, you will end up spending a lot more in interest than if you had a better credit score. It may be very much worth your while to work on increasing your credit score so that you can obtain a mortgage at a better interest rate.
So can you purchase a home with bad credit? Yes, you most definitely can. Whether you simply have a low credit score or have gone through bankruptcy or foreclosure there are viable options you can choose to become the owner of your own home. You will need to decide which is the right path for you, be it an FHA loan, a seller financed home, lease option, bad credit mortgage, or simply waiting a bit of time and working on improving your credit score.
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