It is still possible to finance the purchase of a home if you have bad credit through a bad credit home loan. There are three important factors that come into play.
Owning a home is an essential element of the American Dream. In many ways, by financing a home that you can call your own you are able to call yourself a success. However, those with bad credit often feel that this goal is impossible for them to achieve. However, that is simply not the case. Bad credit home loans do exist and you can get one if you know what to do and where to look.
The Benefits of Bad Credit Home Loans
Many people may assume that a bad credit home loan is simply a scam. Isnt credit the number one element that is used to assess someones ability to finance such a large loan as a home mortgage?
Well, the answer is yes and no. While having a good credit score is certainly an advantage when it comes to getting a mortgage, it is by no means the only qualification. Having bad credit does not mean that finding a home loan is impossible, since there are other factors that come into play.
FACTOR #1: Down Payment
Any time that you want to purchase something where the price is subject to negotiation there is a saying: Cash is King. By offering more money upfront you can accomplish two goals.
First, with enough cash at hand you can lower the overall sale price. This is because sellers will not have to deal with your lender for some of the money, which makes it easier to access and put the sale through.
Second, by saving a large amount of cash (10% or more of the purchase price) you show lenders that you know how to save money and properly budget. This will give them confidence in your ability to pay for your mortgage despite your bad credit in the past.
FACTOR #2: Negotiate Price
The housing market is in dire straits at the moment, which gives you a lot of power as a buyer. In order to convince a lender to help you finance a new home, it is a really good idea to look at buying something that is priced to sell, that is, a short sale or foreclosure that is worth far more than what you will pay for it.
If you pay more for a house than you can reasonably expect on a resale in the future, you accumulate what is called negative equity. By paying less than what a house is worth you accumulate positive equity. Lenders will like the idea that you know how to negotiate and spot a good deal. It will also ensure them that on resale of the home you will be able to repay them all of what you owe.
FACTOR #3: Keep Your Options Open
Even though you have bad credit, you are not doomed to only find one lender willing to serve you. In fact, there are many lenders available online who will specialize in granting bad credit home loans. Therefore, it is essential for you to look at many options in terms of interest rates and other loan packages. By doing your own research on the lending market and your position in it, you are far more likely to find a deal that you can afford.
Home Ownership is Possible
Despite bad credit, the dream of owning your own home is within your reach. In many cases, all you need to do is know your options and be prepared. Bad credit home loans are given to people every day, there is no reason that one of those people cant be you.