Options for home loans for people with bad credit
If you haven't tried to get a mortgage, say, since the 1990s, you may be surprised to find that lending standards have changed a lot. Before, if you didn't have perfect credit, it was almost impossible to get a home loan. Now, though, it is a real possibility. The borrower has to pay a high price for these bad credit or subprime home loans, which may not be worth the cost in some cases.
A home loan for people with bad credit will cost a lot more and require a bigger down payment. This means that over the life of the loan, the borrower may have to buy the house more than once, paying up to three times as much as a prime loan candidate would. A 30 year fixed rate home loan has an average interest rate of 6% right now. With the same terms, the rates for people with bad credit would be around 10%. A loan of $100,000 with 6% interest and 100% financing would cost the borrower a little over $215,000 in the end. If the interest rate on the same loan was 10%, it would cost an extra $100,000, or another house. The total payment is much higher, and the difference between the monthly payments is almost $300. Think about how much $300 can change your family's budget. My point is that it might be best for you to work on fixing your credit before you try to borrow money.
Which leads me to my next idea. Instead of getting traditional financing for your home loan, you might want to look into a lease option or contract. This will let you work on your credit while a portion of your payment and the option fee go toward your down payment at the end of your designated option. Your credit score will go up a lot if you work hard and don't miss any payments for six months. I'm not saying this will fix your credit completely, but lenders will look at the effort. A lease option usually gives you 2–5 years to get the financing you need for your home and a steady escrow account to put towards your down payment (another thing lenders like to see).
Remember that even though people with bad credit can get home loans, that doesn't mean they are good for you as a buyer. They are very expensive, especially if you don't have much money to start with. If you currently live in an apartment and are thinking about buying a house, you should know that some costs will be higher in a house and that some costs, like water, gas, and cable, that are covered by apartment communities will be your responsibility in a house. So, you need to make a budget that you can stick to. If you don't have enough money in your budget for clothes, medicine, time off from work, and the occasional fun thing, it's probably not a good time for you to buy a home. You also need to save money for emergencies. The problem is that most people with bad or poor credit don't have enough cash on hand or savings to pay for things (if they did you would think that they would not have bad credit).
So, if you want to live the American dream of owning a home, be careful not to get in over your head financially. You could end up in so much debt that you can't pay it back and have no way out. If you're not careful, you could lose your home or end up in a situation where you have to sell it to get out of financial trouble.
