What Are My Options If I Have Bad Credit but Would Like to Own a Home?

Your dream of owning your own home may not be out of reach even if you have bad credit.
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Buying a home provides you with an opportunity to acquire a valuable investment in your future, but bad credit may prevent you from owning a home, getting a good interest rate or getting good terms on the loan. However, if you are determined to purchase a home now, you may have options, based on your credit score and particular situation. Each option offers various advantages and disadvantages that should be carefully weighed before you make a decision.

Seek Pre-Qualification from a Local Lender

Your credit may not be as bad as you think, and you may be able to qualify for a mortgage. Each lender has its own criteria, so if one lender rejects you, another may still qualify you for a loan. Generally, people with credit scores of 720 or above qualify for the best loans. Many lenders require scores that are 640 and above. Some lenders offer subprime mortgages to individuals who have lower credit scores, but those tend to carry very high interest rates.

Look for Programs

Local and federal programs may be available that can help you qualify for a loan. Consult your local office of housing and community development to find if any local programs are available to assist you, such as single-parent programs or first-time home buyer programs. You may also try to qualify for an FHA loan, which helps first-time home buyers and qualifies more individuals with bad credit. Some individuals who have credit scores as low as 540 can receive FHA loans, but they must often have a larger down payment, such as 20 percent.

Lease to Buy

Leasing a home with an option to buy provides many benefits to people with poor credit. This arrangement allows a potential home buyer to pay rent on a house while retaining the option to purchase the home within a certain time frame. The renter is the only individual who has the option to purchase the property, and a portion of his rent goes toward building equity in the property. These funds are then used for a down payment if the renter decides to purchase the home.

Get a Land Contract

A land contract is an arrangement in which the seller finances the purchase of the house and retains the title to the property while the buyer makes regular payments to the seller. Due to the lack of acquiring a mortgage, a buyer's credit score is not as important for this transaction. Once the buyer pays off the loan, he receives the title to the property. If the buyer defaults on the loan, the seller keeps the property and does not have to go through a foreclosure process.


An option that is available to patient buyers is to wait. Taking extra time to improve your credit score can help you receive a better interest rate and more favorable terms that can make a significant difference in your mortgage payments.

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