Keeping a high credit rating can be tough. A few small mistakes here and there can really hinder your ability to finance and secure a new home. Here are a few financing options for people with poor or bad credit.
Federal Housing Authority Loans (FHA)
The government began offering federally funded mortgages to people with bad credit in an effort to expand home ownership and boost the economy. The terms of these loans are less than ideal, however they are one of the best ways to secure financing for your home if you have a shaky credit score. With FHA loans, the borrower pays mortgage insurance. This protects the lender from a loss if the borrower defaults on the loan. FHA Government Loans can be a real benefit to first time home buyers.
Secured loans are made possible by the principal of collateral. In this arrangement, you offer something of value to your lender in case you can't pay your mortgage. Putting up your valuables or a vehicle as collateral in order to acquire a loan isn't an ideal scenario for most people. A lender won't care about your financial history if they are able to secure their investments with the collateral that you provide. One of the benefits for you is that these types of loans are completely legal. So, if something does not go right, you can take your lender to court. If you want to learn more about secured (or collateral) loans, thebalance.com has an article that will provide you with some good additional information.
Nobody likes paying more than they have to for a home. Unfortunately, this is the case when you acquire a sub-prime mortgage. Sub-prime mortgages charge more interest than the prime rate. These loans are specifically targeted towards people with bad credit. A sub-prime mortgage will end up costing homeowners thousands more than the cost of their home. Lately, these types of loans have been hard to find. As a home buyer, it is better to shop around for other financing options before signing for a sub-prime mortgage.
The reality is that the mortgage options for people with bad credit are extremely limited. In a perfect world anyone wanting to purchase a home would build up their credit score before applying for a loan. Unfortunately, everyone doesn't have that luxury. It is good to know that there are options available. In most cases, and FHA loan will be the best option for securing a mortgage. A secured loan could be a solid plan B. Just make sure that you are using a credible lender.