The good news is that the American housing industry is finally starting to recover from the Great Recession. The bad news is that any recovery may not include people who have poor or damaged credit. Harsh economic times forced honest and hard-working people into situations where their credit scores dropped. It wasn’t always the result of bad spending habits. Those with poor credit often despair of ever owning a house because they can’t get a loan. That is not necessarily so. There’s more than one way to get that dream home.
An immediate option is to consider renting to buy. In this situation a renter pays for an option to purchase the rented house, and the owner agrees to set aside a certain amount of the rent for a down payment. There are some risks involved in this, such as losing the equity if rent payments are late, but it is a means of locking in a price for a final sale several years later. It thus has some positive potential for the renter/buyer should the price of houses start to inflate.
The federal government still has opportunities for people, and the Federal Housing Administration (FHA) offers insurance for those people suffering from a bad credit profile. That should come as no surprise because the FHA was originally created to help people who could barely afford a mortgage purchase a house. FHA insured loans will reduce the risk of any lender and the result is lower interest rates than ordinarily would be charged. It’s important to remember that a person has to qualify for this FHA assistance, but by no means should anyone feel that getting the support of the FHA is an impossible dream.
Real estate practices are full of terms that an ordinary person has a hard time understanding. One of these is “Owner will carry note”. What this means quite simply is that where an owner has a mortgage, that person will continue to pay a mortgage while the purchaser makes a monthly payment directly to the owner. In other words, the owner becomes a middleman bank. This is an option where a buyer with poor credit comes in contact with an owner who might be in danger of losing the property through foreclosure. Both sides have a certain amount of bad financial problems. Something to remember about such an option is that the owner is the one who sets the terms for such a relationship. The buyer truly does have to beware and should seek the services of a licensed real estate agent or real estate attorney to prevent being put in a precarious situation.
It is possible for a person to get a loan from a bank even if that individual has poor credit rating. A primary reason is that the bank may have foreclosed properties in its portfolio and wishes to turn these empty homes into moneymakers. Banks in such a situation may be willing to discuss a loan with reasonable interest rates. However, this really is the real estate market’s version of a Hail Mary pass. Banks are taking a sizable risk with anyone having low credit scores, even if they do have idle property on their accounts. It may be better to exercise other options and use this as the court of last resort. Credit unions may be a better place to seek a loan.
The important thing to remember is that a bad credit score does not doom anyone to a life of no property at all. It does mean, however, that a buyer with poor credit has to take the road less traveled. Conventional means may be momentarily beyond reach and some innovative thinking is necessary to secure the ownership goal. Nevertheless, it still is possible for someone who has had difficulty with credit scores to buy a house without having to put his or her soul up for collateral.