Buying A Home With Bad Credit
BATTLECALL GUEST EXPERT: Steve Gillman, Real
Estate Investor
The worst thing about buying a home with bad credit isn't that it is that
difficult. It is the fees and interest rates you'll have to pay for your home
mortgage loan. Use the following techniques to repair that credit and so lower
the rates you'll pay. If you can't take the time to do that, see part two for
some other options.
Buying A Home With Bad Credit - Part
One
If you have the time to do it, you can fix that bad credit,
at least a little. This will not only make it easier to find a lender, but also
get you a lower rate. Pay 2% less on that mortgage loan interest rate and you'll
save more than $70,000 in interest over the years (based on a 30-year $140,000
loan). Here are some ways to fix that bad credit report.
First, see
what's on it. To get access for free online, try a search for "free credit
report." If you are denied credit based on a report from a local credit
reporting agency, you can request a free credit report from that agency within
30 days. How do you fix what you see on the report?
If there is anything
to dispute in the report, write a letter to the agency. Explain exactly what is
incorrect, and they must investigate. Send copies of canceled checks or any
other documentation by certified mail.
The agency has to (by law)
contact the source of the disputed information. If they don't receive
confirmation of the debt within 14 days, they have to delete the item, and send
you an updated report. You can also demand that they send a corrected report to
all creditors who received your credit report in the previous six months. This
won't be done automatically, so be sure to demand it.
If the item is
under $500, or over a year old, creditors often won't bother to respond. Thus,
"fixing" a credit report is possible even if it is correct to begin with. You
also have the right to dispute the item again after 30 days.
Longer-term, there are other things you can do to fix your bad credit.
Stop charging things on credit cards. Don't have more than five credit cards.
Keep balances to less than half the limits on the cards, even if this means
transferring debt from one card to another. Stop making your credit score worse,
and time alone will help (many items will be removed after seven years).
Buying A Home With Bad Credit - Part Two
Buying
a home with bad credit doesn't mean you have to accept the high interest rates
and fees of sub-prime lenders. You can buy a house in other ways. Here are some
of them.
- Seller financing. Some sellers are willing to provide the
financing for you to buy their home. Whether in the form of a "contract for
sale" or an owner-carried mortgage, you may be able to make payments to the
seller instead of the bank - and with no lending fees and lower interest.
- Lease option. If down payment is an issue, look for sellers willing to
lease their house to you with an option to buy. Be sure that a portion of the
lease payment applies towards the down payment for the home, and that you have
enough time to prepare for the purchase. If, for example, only $200 of the rent
applies towards the down payment, after two years you'll have just a $4,800
credit. Will that be enough? Will two years be enough time to correct your
credit and save any additional money you'll need?
- Get creative. There
are many creative ways to buy a home. In one case I know of, the landlord was
anxious to move, so the buyer offered him full price and a decent interest rate
for him to carry the financing, but with very little down. They closed in the
first days of the month, so the small down payment came from the rents that were
credited to the buyer. He moved into one of the units the following month.
- Reconsider your "bad credit." Limited income or a new job isn't the
same as a bad credit score. Most banks won't even look at the income from your
new business, for example, making it seem impossible for new business owners to
get a loan. However, these days, banks really look at your credit score. If it
is decent, you can get "no doc loans," which require no documentation of income.
You don't even need a job for these loans. A decent credit score - and
nothing else - can get you up to 95% financing at many places now. Of course,
depending on the credit score, the interest rate can be anywhere from 1/2% to 4%
higher than conventional loans. Consider paying even higher interest to get a
loan without fees if you will be able to refinance at a lower rate in the next
year (perhaps once your new business hits that 2-year mark that bankers like to
see).
Fortunately, buying a home with bad credit or even with no
provable income, has become easier than ever.
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