Qualifying for a mortgage with bad credit these days can be particularly difficult with the mortgage loan market in flux. Many of you who are first time buyers still find the housing costs to be too expensive because, your future income is uncertain, you are young and still establishing a career or you are in the process of repairing your bad credit. You may need to turn to some of the creative methods of financing to get the home you want.
One of the oldest methods used to purchase a home without having to put much money towards a down payment is land contract. This method involves you getting a small second mortgage of around 25% from the seller, a first mortgage from a mortgage lender of around 70% and then making a down payment of 5% plus closing cost fees. Many homeowners are highly motivated to sell their property and this is one option that can work for both parties.
Another way of qualifying for a mortgage with bad credit is through the use of so called express or low-doc loans. With low-doc loans you are minimizing the amount of information that you need to provide to the lender in order to get qualified for the loan. By giving up the necessity to provide extensive personal and credit information, you are required to make a large down payment on the property. The general range is 25% and above.
Of course the low-doc method does require you to have a lot of savings on hand. This may seem antithetical to having bad credit but many of you with bad credit are coming out of bankruptcy or other financial distress caused by a natural disaster like a hurricane, etc. As hurricane victims you may eventually recover funds from insurance companies but your credit has been ruined but the time you receive the money.
Finally, qualifying for a mortgage with bad credit often involves getting down payments from your family in the form of a loan or gift. Sometimes a close family member may be generous and agree to lend you money towards the cost of your home. It is always best when dealing with loans like this among family members that the agreement is drawn up legally. There’s nothing worse than having financial matters destroy what was once a close family bond. Also, you should be prudent and seek the advice of an accountant. You want to make sure the loan is made with some form of interest so it is legal.