If the 80’s was the decade of excess then we must truly live in the decade of having less. Millions of layoffs, foreclosures and repossession have devastated the credit ratings for these less fortunate Americans. It doesn’t make them bad or irresponsible people, it simply makes them unlucky. Many of these people feel that the chances of owning a home for the first time or purchasing another home after losing one have gone down the drain with their credit ratings. This couldn’t be farther from the truth. Here are some steps that you can follow that’ll help you get back into the world of home ownership.
Know What You’re Working With
You may not want to see, but you need to take a look at your credit score and not just from one bureau. You’ll need to get a copy of your credit report and credit score from each of the major entities. Some of the people that I have worked with had credit ratings that were better than they thought. Even if it isn’t good you need to be aware of what’s there and what the damage is. Depending on your lender, you may have to get some explanations or clear up some issues. Typically, you need to have a FICO score in excess of 600 to qualify.
Use Bankruptcy or Foreclosure Waiting Periods to Save
You’ll need to start saving money. If you’ve got marginal or bad credit, the no money down sales lure doesn’t apply to you and in this post recession era it doesn’t apply to many with good credit either. You should wait two, but preferably four years before engaging a lender after a bankruptcy or foreclosure. There are some lenders that may give you a loan six months to a year after bankruptcy or foreclosure, but you’ll have an extremely high down payment that will typically be 20% – 25%. I have heard of some of these lenders requiring 30% – 35% and they almost always have a very high interest rate.
You need to show at least 18 – 24 months of stable work history. This is just the first step. Stable payment histories are also critical. If you’ve had sins in the past, pay your bills on time for at least 24 months prior to purchasing a home and you will have exhibited a stable payment history. If you’ve just recently come through a bankruptcy, it’s even more critical that you pay everything on time. Lenders know that you’ve just gotten a fresh start and will be eager to lend to you if you’ve been stable for the last two years coming out of a bankruptcy.
Look For Owner Financed Options
Many owners have taken the path of playing the bank themselves. For many that don’t qualify for bank or FHA financing, this will be the best choice available. Owners will generally have no qualifying process for the purchaser and they will require lower down payments than banks and most importantly you can get flexibility in terms that the bank more than likely wouldn’t offer you. While using this option, it’s a good idea to check with the lenders about every 12 – 18 months to see if you qualify or if you can refinance for a lower rate.
Lease Purchase Option
A lease purchase is the best and may be the only option for those with the lowest credit scores. Under this plan, you’re basically renting to own the property. You would sign a modified lease and just like with owner financing, you’ll need to check back with the bank every couple years to see if you qualify for a loan. Another great option with the lease purchase is that if you don’t like your home, you can move out after a designated term in the lease and take no financial impact.
