If you want to purchase a home with poor credit, you are basically limited to 3 options: bad credit (subprime) loans, secured loans, or owner financing. Let's take a look at each of these.
The first option to consider is the classic subprime mortgage. A subprime mortgage is a loan that's offered to people with subprime credit ratings in return for much higher interests. This means that if your credit has taken a hit, you stand the best chance of getting this type of loan.
Indeed, any conventional lender will likely not give you a mortgage if you have bad credit. The economic woes have caused all banks to be particularly stingy when it comes out to giving mortgage loans. The number one thing they look at for determining whether or not to give out a loan is your credit rating. If you have bad credit, this means you are a high risk - something they want to avoid.
You still may be able to qualify for a conventional loan if you have a good income and can give some compelling reasons to explain why you have bad credit (medical problems, loss of job, etc). So it certainly won't hurt to put in an application. But don't get your hopes up.
This means that you will probably have to look at subprime lenders if you want to buy a home with poor credit history. The best way to find subprime lender is to look online. Practically all subprime lenders will have an online presence. There is a wide variance between interest rates offered by subprime lenders. You would do well do some detailed comparison shopping. A few minutes can end up saving you thousands. For example, one lender may offer a loan that's a 5% interest rate higher than conventional loans and another may offer the same loan package for 10% higher. It's in your interest to visit at least a dozen or so lenders and ask for bad credit loan quotes. You can then compare the given quotes and choose a lender with the cheapest interest rate and beast loan terms. It's also a good idea to do some consumer research about the company as well. There are some bad apples in the bad credit loan bunch and you want to protect yourself.
Now, you can still take out a loan from a conventional lender. However you basically only have two choices here: put down a down payment for the mortgage or put down collateral for a secured loan.
If you have a sizeable down payment to put down on a house, you stand a very good chance of getting conventional mortgage funding with bad credit. Indeed, with a down payment, you can get a subprime loan from a bank but with an interest rate that matches conventional mortgage loan rates. Banks are quite willing to ignore your poor credit history if you can put down 3-5% of the purchase price of the home. You also will get a lower interest rate because of the down payment and end up spending less money (less money owned = less interest paid).
Another option is to try and get a secured mortgage loan
from a bank. This will require using another house or substantial real estate
item as collateral. Generally most people don't' have a second home to use as collateral,
so this option will only appeal to a few people. However, if you can muster up
some collateral, you can get a secured loan from a bank to use as a mortgage.
Probably the best way forhow to buy a house with bad credit is to consider owner financing. Owner financing is basically a deal between you and a home owner where instead of getting a loan from a bank to buy a home, you directly pay the owner installments on the home, all the while living in the home. Basically, the seller becomes the "bank." This can be very beneficial because the owner may give you a chance to buy the house with very bad credit - something most banks would not do. You should look online for more information about owner financing. It's a serious option to consider.
As discussed, there are many ways how to buy a home with poor credit. But, the best situation is ultimately to buy a home with good credit. Thus, you should make a serious attempt to fix up your credit history so that you qualify for a better loan in the future. You can use a bad credit loan to improve your credit history for several years, and then apply for mortgage refinancing to get a better interest rate. You should look around online and search out bad credit lenders to see what they offer on their websites in regards to loan terms. Also visit your local bank and inquire about loans. The more informed you are, the better decisions you will be able to make.