How To Buy a Home with Bad Credit

Buying a home can be an intimidating process for some.  Factors that make purchasing a home easy include having a great real estate agent representing you, deciding on a talented lawyer, and of course, having a great loan.  Many factors go into what your loan percent will be, a big one is your credit.  If you have bad credit purchasing a house can be a challenge, but it can be done.  Here is how:

1. First off, know your credit score.  Your mortgage broker will use your social security number to obtain your credit.  It may not be as bad as you think.

2. Clean up your record.  Although paying back old debt and eliminating mistakes on your credit score will not impact you ability to purchase a home on the spot, it is a good idea for the future.  Some brokers and Federal Programs will overlook credit issues if you provide an explanation or if the credit issue was not your fault.
3. Seek financing from a private party.  In some instances you can seek a loan from a private company or a family member.  As long as the seller of the property is okay with this arrangement, and he may not be in most instances, you can buy the home.
4. Seek financing from the seller.  In some instances, particularly if the seller knows you and trusts that you can pay back the debt, he or she will finance your loan.  Instead of paying the bank each month, you send a check to the seller for an agreed-upon amount.
5. Put a lot of money down.  Your ability to get a loan depends on a few things, your credit, your debt and ability to pay it off, your employment, or cash in, and the amount you will be putting down towards purchase.  The higher this amount, the lower your financing rate will be.  If you can borrow money or get money gifted to you several months before you think you will be making a purchase, do so.  Most banks will not consider gifted money part of your loan package unless it is gifted several months prior to your offer and purchase.
6. Investigate Federal Mortgage Programs. FHA loans are available for buyers with bad credit and/or limited funds. In this instance you will be funded by the HUD, and not a private bank.  The rates and points can be lower if you do receive this type of loan, because unlike a conventional loan FHA loans do not place the highest premium on excellent credit.  Unlike conventional loans you may be gifted an amount for your down payment from a family member or non-profit organization.
7. Get a co-signer.  If your credit is poor you can find a co-signer with good credit to co-sign.  By agreeing to sign the co-signer is both vouching for your ability to pay the loan, and sharing the responsibility.  Should you fail to pay back the loan the bank can go after your co-signer.
8. And always, always, always, compare rates.  It is always recommended that you compare rates with several banks and lending institutions.  Inquire about special programs for people with mending credit reports.  Banks that cannot serve you may be able to refer you to another bank or association that will gladly work with you.