How to plan a real estate purchase even if you have bad credit

Every person has one great wish and that is to have a house to call their own. Unless someone wills their property to you, you definitely have to build or purchase your own house. The most important criteria in obtaining loans or mortgage for real estate is a good credit rating.

If you have come into hard times and are having a bad credit score, obtaining financing for real estate purchase will be a daunting and frustrating situation.

It is natural for credit lenders to reject your application as they would have to take more risks in giving credit for people with bad credit. However, there are many things you can do to improve your credit scores and obtain financing for your dream home.

  1. Get your credit reports from each bureau – Experian, Transunion and Equifax.

There are countless aspects which contribute to your credit score. Check the details in each of your credit reports for any inaccuracies and note them. You should follow it up by filing a Dispute form identifying the inaccurate details and submit it to all three bureaus within 30 days.buying a home with  bad credit

It is vital that your dispute is supported by relevant documentary evidence to prove it. Your credit score can increase significantly by simply removing one or two detrimental information.

  1. Seek FHA approval and insurance for your loans

The Federal Housing Administration offers insurance for mortgages for homeowners with low credit.

However, there is no guarantee that you will get their support as the FHA has many conditions which need to be met before any loans are insured. Sometimes, it might take as long as two years along with some tight-fisted financial control on your part.

3. Consider alternative options offered by HUD

Your local HUD office will provide details of alternative housing loans available for new home-owners. With a bad credit, it will not be possible to secure a loan or mortgage for a house with some luxury.

bad credit mortgageHowever, a discussion with the housing counsellors about making a purchase with bad credit will be very helpful, as you will learn about the different housing programs offered by the HUD. You could consider purchasing foreclosures to reduce your costs.

4. Check out the lenders.

When you have bad credit you will be plagued by credit lenders offering loans. Some of them could be scammers. Before divulging any information about yourself, you should check them out with your local Better Business Bureaus. Take time to compare their rates as these loans come at a high price – very high interest rates.

5. Look for cheaper options like purchasing a house that needs repairs.

When applying for mortgages, lenders usually provide far less than the requested amount if you have bad credit. The listing of a mortgage in your credit report will contribute to a considerable increase in your credit score.

The HUD offers rehab loans for new homeowners to buy up houses in need of repair. You are given a specified period to carry-out the required repairs.

6. Save and accumulate a bigger deposit.

Lenders will offer a mortgage if you can provide a bigger deposit. If you have a bad credit score, lenders will be reluctant to offer a mortgage as they will be taking a major risk.

However, if you are able to provide at least 20% of the loan as down payment, the lenders will note that you have invested your savings and agree to provide finance for mortgages.

If you provide less than 20% as down payment you will be required to provide additional insurance – PMI (Private Mortgage Insurance) to protect the lenders from default in payments. However, loans offered by FHA require down payments from 3% to 10%.

Some people have friends and relatives offering financial assistance to contribute towards the down payments. In such an event, all your contributors must sign a “down payment gift letter” stating the funds contributed are gifts for down payment and not loans.invest real estate bad credit

There are some serious concerns that you should pay attention to when taking out a mortgage. Do not agree to:

  1. an ARN (Adjustable Rate Mortgage). Your interest rate can change according to the market. This can lead to higher payments. You should look out for information pertaining to loan caps – limits imposed relating to the maximum interest that can be levied and also the frequency.
    The most important detail is the lifetime cap, which specifies the highest rate that can be charged. Before taking any decisions regarding this you are strongly advised to refer the Consumer Handbook of ARM by the FTC.

  1. a Prepayment Penalty. The lender seeks to penalize you for settling your loans ahead of time or making extra payments. Every individual has the right to settle his or her debts early. If you have excess cash, you should seriously consider paying more than required to reduce your debts.

Here’s a great resource to read on wikihow.

All of the above will take time and require a lot of patience on your part. With perseverance, sound financial management and a strong will power to succeed you can overcome the situation in two or three years.