Buying a home with bad credit can be challenging, but it’s not impossible. While low credit scores can be a deterrent for traditional lenders, there are plenty of alternative ways to acquire the financing you need to get the home of your dreams. Sub-prime mortgages can be accessed through a variety of methods, so consider the following and be well on your way to securing the home you’ve always wanted.
Start By Getting Organized:
Before you can approach any lender—traditional or not—it’s important to get organized. In order to access loans with bad credit, you’ll need to be able to prove that you can currently afford payments. Start by collecting all pertinent financial documentation, which may include:
- Recent pay stubs
- Bank statements
- Recent tax returns
- W2s and 1099s
It’s also important to list out any liabilities currently under your name, including student loans, car loans, etc.
During this organization process, be sure to create a monthly expense report—a detailed budget that can show potential lenders you have the ability now (and in the future) to pay them back their loan. This step is a necessary one and will help you determine whether or not you can currently afford a mortgage or alternative loan. If you’re finding it difficult to put together a detailed report, enlist the help of a financial advisor or accountant to handle the details.
Accept That You’ll Be Paying More:
Thanks to your low credit score, lenders will be averse to offering you a loan, as it carries a higher amount of risk for them. Accept that you’ll be paying higher rates, and be prepared for terms a bit less lenient than traditional loans. You may find that you’re paying more in the form of high interest rates, or you may need to provide more for a down payment.
Find A Cosigner:
If you have a loved one who is willing to cosign your mortgage, your chances of loan approval increase significantly. However, it can be challenging to convince friends and family member’s to put their name on this type of loan; if you fail to make any payments, they’ll be held responsible. If you do find a loved one with great credit who is willing to help you, you may be able to secure lower interest rates.
Talk to Hard Money Lenders:
Hard money lending is a good option for those with poor credit looking to invest in real estate. Because these loans are privately-based, they’re awarded based on the value of the property itself. This is an especially great avenue for property seekers in highly competitive markets. Take Southern California, for example. An individual looking to buy a home in a saturated real estate market like Orange County may need to look towards localized financers, like Irvine or Santa Ana hard money lenders. While you’ll deal with steeper interest rates, so long as you make your payments, you’ll have an immediate form of income that allows you to capitalize on a great real estate opportunity.
Consider Peer to Peer Lending:
Peer-to-peer lending has become an increasingly popular way to fund real estate ventures. If you’ve been unable to secure a cosigner and you’ve faced repeated rejection from traditional financers, this modern method of funding can be a great option. Private lenders on sites like Lending Club serve as a connection point for searching borrowers and willing (and able) lenders. While private lenders typically prioritize borrowers with good credit, there are certain lenders who may be willing to fund your purchase as long as you can provide airtight evidence of your ability to pay.
Don’t let bad credit prevent you from pursuing the home of your dreams. There are plenty of ways to finance a property acquisition, whether you’re buying for your personal use or hoping to get involved in real estate as a career. Consider these options and take steps towards securing your ideal property sooner.