Options for Getting into Home Ownership with Bad Credit

Options for Getting into Home Ownership with Bad Credit

Truthfully, you have lots of options for getting into home ownership with bad credit. While you’re most likely going to pay higher interest rates (if you can qualify for a mortgage), bad credit doesn’t always automatically mean you’re doomed when it comes to home ownership; and once you start looking, you’ll find there are options you never even thought of, or knew of. But among those many there are a few that often outshine the others, and prove to be the best way to get a mortgage with bad credit.

Here are the three best ways to get a mortgage with bad credit.

#1: Rent to Own
Believe it or not but there are many investors out there that are willing to help you by buying the house you want and renting to own it to you.  Consider it a WIN-WIN for both.  The investors make a return on their investment while you get the house you want today and an investment for your future.   Beats paying your landlord another $1300 per month for the next year.  A rent to own affords you the time you need to repair your credit and accumulate a bigger down payment – both of which make you a lower risk to a lender when it comes time to qualify for your own mortgage on the house.

#2: Starting with a larger down payment
This is the best way to get a mortgage with bad credit. Generally you need 20% of a home’s purchase price as a down payment before lenders will even consider you. Some will allow you to still obtain a mortgage with less, but you will need to buy mortgage insurance, which can come at a cost of thousands of dollars a year. But pay over 20%, and as much over as you can, and lenders are going to look more kindly on you. By paying more now, lenders have to loan you less; and that’s always good for them because they don’t have as much risk.

#3: Get a private mortgage
You can find corporations and individuals that might be willing to offer you a private mortgage. Essentially, they act as the lender and loan you the money to buy the home. Keep in mind that private mortgages will usually have a higher price tag associated with them.  Expect interest to be 10% and up on any amounts loaned for a private mortgage.  Although this option is different from a conventional mortgage, in that you may not need the same qualifications as a lender would require to get approved, you will still need an actual mortgage contract and all proper paperwork set in place.

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  1. slmwoj March 24, 2013 at 12:45 pm

    Good post and some good options here. For those that can’t get a mortgage, these are worth investigating further.

  2. PeterT March 26, 2013 at 9:39 am

    Decent post but a little to cavalier for me. It is easy to say “get a bigger down payment” than to do it. I have been trying for years to put money away for a down but constantly find myslef needing that money for something. It might be the hardest thing to do, period. I have resolved myself that I will not be able to get a mortgage unless I look at the other options listed here which I have not done yet. Renting is not an option I want to continue doing, I think it is a huge waste of my money and need to move away from it.

  3. Ellie March 29, 2013 at 7:36 am

    Very good options. I am currently looking at renttoown as an option for my situation – bad credit. I have 5% down but cant get banks to give me a mortgage because of some mistakes I made when I was younger. Tried the private mortgage path but it was far too expensive over the long term.

  4. April April 30, 2013 at 6:49 am

    Great options there. There are also some companies out there who can help people with bad credit rent a home or an apartment such as EZ Lease Rentals. Personally, I’ve tried it and I was able to rent an apartment, which is great and now I am slowly restoring my credit score to its original and normal state.

    However, I actually think paying a bigger downpayment is a great option just as long as you have THAT money because you get to pay smaller monthly payments on the rent itself, which will make it easier for you to pay in the long run.

  5. Amber Cresswell June 16, 2013 at 10:53 pm

    Not sure how active this post is anymore but would like to know if anyone has checked in to second mortgages lately? What is the range of interest one could expect if looking at this option?

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