Home Financing Options for People with Poor Credit
Posted by JD Esajian // November 14, 2011
In this tough economy, it’s hard to keep your credit rating as high as you’d like it to be, and only a few financial mistakes on your record can compromise your ability to finance a new home. If you’ve got less than stellar credit, here are a few financing options to investigate:
- Federal Housing Authority Loans. In an effort to expand home ownership and give a boost to the real estate market, the government has begun offering federally funded mortgages to people with bad credit. While the terms of these loans may not necessarily be ideal, they’re one of the best ways to secure financing for your real estate investment if you’ve got a spotty credit score.
- Secured Loans. Secured loans operate on the principal of collateral: you offer something of value to your lender in case you can’t pay your mortgage. As you can imagine, having to put up a vehicle or other valuables as collateral in order to finance your real estate investment isn’t the most desirable scenario, but lenders who are able to secure their investments will likely care much less about your financial history. Furthermore, since these types of loans are fully legal, you can take your lender to trial if things go awry.
- Sub-Prime Mortgages. Sub-prime loans are mortgages which charge more interest than the prime rate. Specifically targeted towards people with bad credit, these mortgages will end up costing homeowners thousands more than the price of their real estate investment. Since the credit crunch of 2008, these loans have been harder to find, and even if you do manage to find a lender willing to finance your real estate investment at a sub-prime rate, it’s better to shop around for other financing options before signing on the dotted line.
As you can see, the mortgage options for people with bad credit are extremely limited. While it’s always a good idea to build up your credit score before applying for a home loan, if you need to find financing for your house immediately, there are ways to do it. While an FHA loan is probably your best bet for securing a mortgage, don’t be afraid to apply for a secured loan – as long as you’re sure the lender is legitimate.