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Can I Buy a House with Bad Credit?:How Bad Credit Affects Homeownership - In the first few years of the new century, home ownership rates were at a record high, with about 70 percent of Americans owning their own homes. These were the days when it was easy to get a mortgage, whether your credit was sterling or not. If you had a few black marks against you, you could get a bad credit mortgage, or, as we know them, a sub-prime mortgage. These were mortgages given to people with poor credit, and as the housing market tumbled, banks and lenders instantly started tightening their fists. Millions of foreclosures, which are especially prevalent among those with sub-prime mortgages, have made the banks wary of taking risk. This means that if you have bad credit, you will find it difficult to get a mortgage today. Does this mean you can't live your piece of the American dream in your very own home? Not necessarily.
Buying a Home and the Economy - After the housing bubble burst, the effects were staggering, and they are proving to be long-lasting. Three million homeowners saw their homes foreclosed in 2009, and 2010 did not bring the relief that was hoped for. The still sluggish economy and continued high unemployment have put even more homes in danger of foreclosure. Unfortunately, this affects not only the people who own the homes, but also the people who want to own a home. If your credit is a shiny 800, it is a great housing market. You have your pick of homes that are typically priced well below early-2000 levels. But if your credit is poor, you're going to have a harder time. Experts say that you need a credit score of at least 730 to qualify for the best loans. Today's down payments will be higher: the days of zero down are largely behind us. More people have been leaning on the FHA, or Federal Housing Administration, for help. In 2006, the FHA guaranteed 3 percent of homes in the US. Today, they guarantee over 33 percent. The FHA is a great resource for those with lower incomes or who may have credit problems, but because of the huge increase in demand for their help, their funding is deteriorating. This makes it difficult to get FHA-backed home loans with bad credit, but not impossible. It is worth checking with FHA to see if they can help.
Buying a House with Bad Credit: Can vs. Should:It may be technically possible to obtain home loans with bad credit, but does that mean you should? There is a reason your credit is poor, whether because you overextended yourself with credit cards, have extensive school or auto loans, or you had to pay a big medical bill. Whatever the reason, it is a good idea to address your credit report problems before you take any steps to buy a home. When you apply for a mortgage, the lender will check your credit, and if there are negative entries, you will have to take care of that before they will pre-approve you. Save yourself some time and only apply for pre-approval after you have paid any debts. Say you have a $500 credit card bill that you never paid. Send in payment and make copies of the remittance slip and your check. After a month or two, access one of your free annual credit reports and see if the item has been updated to read "paid." Do this with the all of the outstanding debt that you can. But what if you don't have the money to pay off your debts? Then, you don't have the money to buy a home. It is that simple. You need to take care of the debts first. Adding a mortgage to the mix, even if you could find a lender to give one to you, would only add to your financial burden. Banks don't want to take bad risks right now, but you can always find a mortgage company that offers bad credit loans. Why not take them up on the offer and finance your new home that way? This is a perfect recipe for foreclosure. You know those sub-prime mortgages we were talking about? This is it. Bad credit loans charge much higher interest rates than do traditional loans. A bank may charge 4.3 percent for your mortgage; a bad credit mortgage lender may charge 10. Over the term of your 30-year mortgage, that adds up to tens of thousands of dollars. Worse, many had adjustable rate mortgages (ARMs), which meant that their interest rates, even if low initially, could increase at any time. This may not be the answer you want to hear, but it is a much better, much safer, idea to wait, work on your credit report, and get a mortgage through a reputable (and preferably local) bank. Your interest rates will be lower, and you have the security knowing that they think you are a good risk. Is all hope lost if you want to buy a home now? No. You still may be able to do it. It is a good idea to check out local programs that are designed to help people with bad credit (http://www.hud.gov/buying/localbuying.cfm). Not only can they help you with the steps you need to take in order to secure a good mortgage, they can help with other financial issues, like checking your credit report, disputing inaccurate entries, and helping you figure out paying plans for creditors. This is a tremendous resource that you should take advantage of if you want to buy a home. You can also talk to a HUD counselor about buying a house with bad credit (http://portal.hud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor) or look into purchasing a HUD home (http://hudhomestore.com/HudHome/Index.aspx). These are backed by HUD, and if a property owner defaults on his mortgage, it reverts back to HUD ownership. HUD then lists for below market value. This can be a great opportunity to buy a home for a bit less. Can you buy a home with bad credit? Where there's a will, there's a way. But don't buy a home if it is going to put you further into financial trouble or make it impossible for you to pay your existing bills. Stay away from predatory lenders, which will also help you stay away from foreclosure. Now might not be the time to buy. It might be the time to save and work on your credit. If you do make the decision to buy a home, make sure you talk to HUD or other counselors to see how you can make it more affordable.
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