How to Purchase a Foreclosed Home when You're Broke

Foreclosed homes are an enticing choice for buyers who have no money saved to put a down payment on a home, and also have no credit. There are many agencies available to help you find a home and make the purchase.

Step 1

Obtain a list of foreclosures from a real estate agent who has access to the Multiple Listing Service. You can also use ForeclosureFreeSearch.com if you want to try to find a foreclosed home on your own. This website allows you to search by city and state and gives you a list of addresses for all the homes that are in foreclosure. It also reveals the listing price and often displays pictures of the home. However, it only offers a free seven day trial, so after that you would have to pay for services. You can also search the HUD website for a list of their foreclosures. See "Resources" below for links.

Step 2

Research the options. Research zero-down financing options for individuals with no credit. One option is to search for an FHA lender. The Federal Housing Administration (FHA) is part of HUD and will often approve you for a loan when you have no credit and no money down, especially when you are a first time home buyer. If you are a US Veteran, you may also qualify for VA loans, which provide financing for veterans with financial issues. See "Resources" for a link to VA and HUD sites.

If you cannot get approved through either of these programs, your best bet may be to check with bad-credit lenders online. Many of these "hard money lenders" specialize in helping individuals secure homes who have no money and no credit. Keep in mind that you may have to pay a higher than normal interest rate to secure credit. For instance, many traditional banks require 5-20% down (depending on whether you're a first time homebuyer) and charge an interest rate of 8.25% or lower (depending on credit). In contrast, a hard money lender may charge 0% down but a 15% or higher interest rate. In addition, a hard money lender may charge an additional 10% or more as a "default rate." For a list of hard money lenders and additional information about these programs, visit Lender Lab in "References."

Step 3

Check your credit. Obtain a copy of your credit report to check for any discrepancies which will help improve your credit score or help you establish credit if you don't have any. You can get a copy of your credit report for free or for a low price through various online providers such as Experian or TransUnion. If information on your report is incorrect, you can get this corrected for free. You would need to submit the dispute in writing to the credit bureau for review. You should also contact the creditor to resolve the issue and have them report the correct information to the bureau. If all the information in your report is correct, you can start getting approval for a home loan. Knowing your monthly obligations will help you obtain a mortgage that is within your means while still making your other obligations.

Step 4

Obtain pre-approval for a loan. Once you have done your research and determined which loan you are eligible for, the next step is to apply. Be sure to have all the proper documentation handy to make the application process flow more smoothly. You will need to verify proof of income, employment, and your credit score, among other things. You might also need previous tax returns and bank statements. Once you have all of your information ready, apply online if at all possible. Applying online saves time and paper and you generally get a response more quickly.

Step 5

Decide on a home and negotiate. You should put your offer in writing and be prepared to negotiate any counter-offers. Before long you will have the keys to your own home!

Reference

• 
  Lender Lab

• 
  Foreclosure Free Search
• 
  HUD and FHA
• 
  VA