Just because you have bad credit, it doesn’t automatically mean that you cannot purchase a home. You may be required to pay a higher interest rate than other people, but you are not disqualified from pursuing a home purchase merely because you have bad credit.
If you have recently filed for bankruptcy it is recommended that you wait at least four years before applying for a mortgage. If you have a foreclosure in your past it is recommended that you wait two years before applying for a mortgage, this means that in the case of a foreclosure you may qualify for as little as 3.5% down.
If you find a lender who will approve you sooner than the recommended waiting period, you may be forced to come up with a 20 – 35% down payment. Along with the large down payment, you will also have a much higher interest rate and loan terms that are not favorable. If you cannot meet these strict requirements, it may be better for you to wait the allotted amount of time before trying to purchase a home.
Proving to lenders that you are a good risk requires that you have reliable employment, a low amount of outstanding debt and are working to improve your rating regularly. Lenders like to see that you are steady and can handle the responsibility of a mortgage payment. Proving this to them may take some time, but once they recognize that you are not a high risk loan, they may approve your application.
If you have any outstanding debts, it is important that you pay off as many as possible. This will show lenders that you are serious and you are working towards repairing your credit. If a debt has reached the point of being sent to a collection agency, you will have to contact each agency and request that a payment arrangement be set up or if you able to pay the debt in full. Many collection agencies will offer a discount of your balance just to get the account off of their books. If they offer a discount take advantage of it, this means that you will be paying off the creditor for a lesser amount.
If for any reason you are not satisfied with the rates offered by a lender you may want to consider purchasing a home that offers seller financing. In this case the seller would take the place of a lender and you would pay them directly. Choosing to go this route means that you may not have to meet the strict guidelines set forth by lenders, your interest rate will be lower and you will close fast. This is a very good solution for those who can’t meet the requirements of many lenders.