Many consumers find themselves in the same position. They have bad credit, their credit is over extended, and their debt to income ratios are completely out of whack. So, what does a consumer do when they are in need of renting an apartment or, searching for a home? The good news is that when it comes to most bad credit scenarios there are options available for obtaining a loan with bad credit, lets take a look at them:
FHA Loans – With a minimum down payment of 3.5% and a middle credit score of 620 FHA Loans are regulated by the Federal Government, and have proven to be a trusted source of home loan financing for those with less than average credit for years.
Mortgage Brokers: Traditional Lenders (Banks, and Financial Firms) will more than likely not have any available home loan services for those consumers who have less than average credit. Mortgage Brokers on the other hand have a wide variety of partners, and in most cases will be able to offer you a home loan solution to your bad credit stress.
Hard Money Loans / Hard Balloon Loans: Although I wouldn’t recommend this option to anyone. Hard Money Loans or, Hard Balloon Loans are an option. Interest Rates can average anywhere between 13% and 29% making your monthly payment shoot through the roof. If this is the only option for you, and you take it my suggestion is to work your butt off over the first year or, so of your loan, fix your credit (Pay down or, off debts) and then, refinance into a much better loan that will fit your needs, wants, and desires.
NACA – Over the last several years NACA has provided excellent resources, courses, and yes, even home loans to millions of people struggling with bad credit. The bad about utilizing them is that utilizing them can take up to 4 months. **Note** NACA will also require the home buyer to take consumer finance education classes through them. This is not a bad thing however, as NACA is extremely resourceful, and the consumer will learn how to repair their credit in a responsible way through the courses offered.
Seller Financing – Many Investors, FSBO’s, and even general homeowners who are selling their properties may be open to Seller Financing. If the purchase of a new home is not contingent on the sale of the property that is being sold that a consumer is looking to purchase the seller may in-fact be open to Seller Financing which would involve A FSBO Contract, A Quit Claim Deed recorded at your local county courthouse, and monthly payments made via check (always through a traceable method) into an escrow account designated directly for the transactions going back to the specific property.
Although it doesn’t appear that there are a lot of options they are the only options for those who have over extended themselves. Please note that if a bankruptcy is in process, Seller Financing is your only option, and the deed can not be transferred until 2 years (at minimum) after you have been fully discharged. Some of these options can work very well in the favor of the home buyer as well as the home seller. If a consumers credit is terrible my suggestion would be to go with trying to obtain Seller Financing without a traditional loan. Again, this can work out well for both parties in the Real Estate transaction, and can reduce numerous complications along the way as well. Just a note to buyers who choose this option though – Please make sure that you obtain a property inspection, and appraisal as to ensure that you are not being taken advantage of.