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Buying a Home with Bad Credit: It's Possible

By Thomas Mitchell

For many homeowners, having bad credit seems like an incredible burden. Maybe you have just gone through a foreclosure, or filed for bankruptcy, and think that getting your next house will be impossible. Well it's not, and although it will take some patience and discipline, buying a new home with bad credit is still a viable option for you.

The first thing you will want to do before you even search for new homes is look at your credit score. Not just from one bureau, from as many of the major credit score agencies you can find. Get an accurate assessment of where your score is at. Some people find out that their credit is not really as bad as they thought it was, or maybe it's worse. Either way you need to know. Generally, you need a FICO score over 640 to qualify for most loans.

You'll also want to save as much as possible. Most sales pitches that you see on TV or in advertisements will not apply to you if you have less than stellar credit. If you've just gone through a bankruptcy or a foreclosure, most lenders require a 2-4 year wait before providing financing again. If you want a loan within a year of experiencing bankruptcy or foreclosure, then the interest rates will be through the roof. Use waiting periods and/or bankruptcy as your time to save. You will also want to show a stable work history. 18-24 months will look good to a possible lender. Making your payments on time is critical as well. If you're just coming out of a bankruptcy, lenders want to see that you've taken advantage of your fresh start and are paying your bills on time.

If you can't get financed from a bank or the FHA, then you may have to look for owner financed options. Many homeowners will offer you more flexibility and lower down payments than a bank will. There is usually no qualifying process either. You should still check in with lenders while pursuing this option, to see if you qualify or if you can refinance.

A final option for those with the worst credit is a lease purchase. With a lease purchase you are renting to own the property. You sign a modified lease, and the best part is if you want to move for one reason or another, you can just wait until the designated term in the lease is up, and move out without taking a hit to your wallet, or your credit.

Having bad credit can seem like a financial death sentence, but with so many people now in debt, options for those with bad credit are becoming more plentiful as well. Follow these general guidelines and you will have a real shot at getting back in the game of home ownership.

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Robert Pique

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