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In this 10-part series, I will be discussing 10 ways to purchase a home if you have credit-related issues.
First, its important for you to know that due to the tighter restrictions mortgage companies and banks have in place these days, traditional types of lending are out. If you've got issues on your credit report, don't expect to be able to walk into your local bank branch and qualify. It probably won't happen.
Method # 1 of 10: Seller Financing
Seller financing (also called "owner financing") can be a very useful tool for those wishing to purchase a home but have credit issues preventing them from utilizing a traditional lender.
In this type of transaction, a buyer negotiates the terms of the sale directly with the owner and then makes monthly payments as agreed. The parties can negotiate the interest rate, the repayment schedule, and several other conditions of the loan. The buyer can also request special conditions of the purchase, such as the inclusion of appliances, furniture, or even vehicles.
In most cases, this type of financing is usually only for a short term, allowing a preset amount of time for the buyer to better his/her financial situation so they can qualify for additional financing later.
Under this type of financing, a balloon payment is commonly due within 1-5 years, giving the buyer plenty of time to arrange for future financing using conventional methods. It is extremely rare to find a seller willing to offer a standard 30 year term in order to pay off the loan.
For example: Tony and Tasha have found the perfect home at the perfect price. They go to Bank of America and apply for a mortgage. Because of long standing credit problems, they are turned down for a mortgage loan. They realize it will likely take 6 months before they will be able to clear up their credit issues.
Because they don't want to take a chance in losing their dream home, they approach the homeowner to see if they would be willing to owner finance the home for them for the first 12 months, giving them plenty of time to get their credit in order and secure a traditional loan at a bank. Once all the terms are agreed upon, they are able to move into their new home, making their monthly payment directly to the homeowner. Eight months later, they refinance the home into their own names. The bank pays the seller for the purchase price of the home and Tony and Tasha continue on with their lives.
Of course there are benefits and downsides to seller financing so this approach should be used with caution, and with the assistance of a knowledgeable real estate professional to guide you.
Even though its possible to buy a home with bad credit, would you really want to? In most cases it's probably better to spend the 3 to 6 months repairing your credit so you can get the best financing, rather than have to deal with higher interest rates. Any credit problem can be removed or improved in less than 6 months, if you know exactly what to do.
In my new book, "Break the Shackles of Bad Credit: 133 Strategies to Fix Your Credit in 2010", I discuss many step-by-step methods of doing this.
But if you insist on purchasing a home with bad credit, be on the lookout for the next installment in this series where I'll be discussing method # 2 of buying a home in this market with bad credit.
