Mortgage Options for People with Bad Credit

Owning your own home is still the American dream. While having bad credit does not mean you will not be able to obtain a mortgage to finance the purchase of a home, it does limit your options. You may find that traditional lenders will not be willing to finance your loan.

Before giving up the dream of owning your own home, do some research. You may be surprised to find that, albeit for a higher price, there are many lenders willing to finance your mortgage. If you are able to secure a mortgage, this will give you some time to get your finances in order and refinance your mortgage at a lower interest rate in the future. In many areas of the country, homes are selling for a fraction of their original asking price due to the current slow-down in the economy. It is now a buyer's market and you should take advantage of the low-home prices while they last.

One of the first places you should check is with the FHA, especially if you are a first-time homebuyer. It is possible to secure a mortgage for a first-time homebuyer for as little as a 3.5% down payment. FHA interest rates have historically been some of the lowest in the financing industry. The credit requirements for the FHA are not as stringent as the traditional finance companies. For people with low credit scores, the FHA may be your best option. If your credit score is very low, below 500, the FHA will not finance your mortgage.

There are a number of online lenders who will finance these mortgages, but you must be very careful and do your homework. Always check the company's record with the Better Business Bureau, particularly looking at any complaints filed against the lender. With subprime lenders, you will be paying a higher interest rate, charged more points and required to make a larger down payment. Be sure to check out all of the fees included in closing costs, as these can add up quickly.

Perhaps the best option in securing a mortgage with bad credit is to start putting away a nest egg, saving up for a down payment and looking into improving your credit score. Start paying your bills on time, improve your credit score, and then reapply for that home mortgage loan.

Sources:

FHA Home Financing, FHA Finance for First Time Home Buyers

FHA credit guidelines, scores, loan programs

More From This Contributor:

Legal Considerations for Choosing a Business Entity
Advertising: Don't Put All Your Eggs in One Basket!
The Top Ten Attributes of a Good Employee