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Is Home Buying Still Possible With a Bad Credit Record?

Tuesday, November 22nd, 2011

Your credit history has a lot to do with your home buying success. It is because securing financing for your purchase will involve getting your credit history scrutinized. If your credit is bad, your chances of securing a loan will be lowered. However, there are ways you can still buy a house even when your credit score is less than ideal.

Is Home Buying Still Possible With a Bad Credit Record?

What causes your credit score to tumble?

Foreclosure is one way of pulling your credit score down, while a bankruptcy filing is another. If you had filed for bankruptcy, the negative impact on your credit report will remain for as long as 10 years. Unpaid bills and credit card debts and other financial obligations that you have failed to address can also bring your credit score down, but the worse impact will come from foreclosure and bankruptcy.

Loans available

If you intend to buy a home despite having a poor credit score, one of your options will be the FHA loan. This government loan does not give much weight on credit scores, particularly for applicants who are first time homebuyers. However, if you have been foreclosed on, you will have to wait two years after the takeover of your property to secure financing from the FHA.

Another option that you can explore is the one offered by so-called hard-money lenders. These are not the same as subprime lenders who have been largely blamed for the housing industry downturn. Hard-money lenders are mostly willing to issue loans half a year after a bankruptcy filing or a foreclosure, but will require a higher down payment. The down payment may range from 20% to as high as 35% of the actual amount of the loan.

Cash loans are another possible alternative. Cash loans are easier to acquire than mortgage loans and you can use the money to purchase a property in cash. This can also come from family members or relatives who have the means to lend you the money you need. The good thing about loans from family members is that you may be able to agree on a no-interest type of loan, although this will depend on how much money your relative has and how close your relationship is with them.

Improving credit scores

If you are not in a hurry to buy a house and you have not been foreclosed on or filed for a bankruptcy, you may opt for the usual mortgage loan route, but work on your credit score first before applying for one. The first thing you need to do is to pay as much of your debts as you possibly can.

You also need to have a steady source of income for at least two years or prove that you have a regular job. Paying bills on time and not incurring late payment fees will also help improve your credit records. It may take you half a year or the better part of a whole year before you can get your credit score back up again, but it will be safer and will be better for your home buying chances in the long run.

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