Despite the upheaval in the real estate market, the American Dream is not dead… most of us still want to own our home. And the media would have us believe that widespread reform in the mortgage industry has eliminated the possibility of finding a mortgage if you have poor credit… don’t you believe it!
Before you give up on owning a home, follow these steps…
Step #1: Get your act together.
Before you speak to a mortgage lender, check your credit… correct mistakes… challenge unfair information… make small, past-due payments. In other words, make sire you look as “good” as possible.
Step #2: Be Prepared.
Gather and organize all your financial information. Make sure you have your account numbers, account balances, contacts and address of references, bank information … everything that the lender is likely to be interested in.
Step #3 Apply for a mortgage loan. Yes, that’s right… If you haven’t already been turned down, go ahead and apply for a mortgage. Mortgage lenders know that nearly 35% of consumers who believe that they won’t qualify, actually DO qualify for a traditional mortgage… it’s worth the effort.
One caution, with your application you will be required to pay an application fee of several hundred dollars… make sure you will receive the fee back if you do NOT qualify for the loan.
If you do NOT qualify for a traditional mortgage, you still have some options….
Traditional Mortgage Loans
There are two factors that you need to consider if you wish to obtain a traditional mortgage loan with poor credit:
- Cash vs. Credit – Understand that, in the eyes of the lender, there is a connection between Cash (down payment) and credit… the better your credit, the less cash you need, BUT the weaker your credit, the more cash you need. So if you have poor credit but a lot of cash (20% or more of the purchase price) you can probably find a lender.
- Specialized Lenders – Many lenders only work with “Good” borrowers… they simply are not interested in the increased risk of poor credit. But some lenders specialize in “poor credit” borrowers… these are the lenders you are looking for… just understand that these are not charitable institutions… they will ask higher interest rates and fees to cover their increased risk.
Non-traditional Mortgage Loans
If you are unsuccessful in finding a Traditional mortgage loan but you are still determined to buy a home, then Good For You! With some work, you will probably be successful using one of these sources:
- Lease with option – This approach allows you to rent a home and apply some or all of each monthly payment against a pre-defined purchase price. At some point, you have the option to purchase the home, at which point you will need to find a mortgage lender to finance the purchase. Sometimes the landlord will even offer to finance the purchase personally, particularly if you have been a good, dependable tenant.
- Seller financing – Some owners (particularly in today’s difficult market) will actually loan you the money to purchase their property. But there are several things you should be aware of:
- The only owners, who can realistically consider Owner Financing, are owners who do not have a mortgage to pay-off. The best candidates are older rental homes, estate properties, vacant homes, etc.
- Even owners who are willing to finance, are NOT likely to carry a loan for 30 years…almost always you will be looking at a 5 to 7 year note with a huge payout at the end (called a balloon mortgage). Still, short-term owner financing will give you time to get your credit repaired and to refinance the property in the future.
In summary, poor credit doesn’t mean you can’t buy a home… it does mean that you will have to have patience and persistence… but owning your own home is worth it!
I will try and start with a traditional mortgage frist. I think I will have a problem getting a small loan.
No mortgage wants to make small loan, just as much paper work and less mortgage interest and a higher rate of interest.