Bad Credit and No Money to Purchase a Home?

Posted by Steph Kaye on Monday, March 3rd, 2014 at 10:56am.

It is Possible

 Just because you have bad credit, filed bankruptcy or gone through a foreclosure does not mean you are unable to purchase a home. The truth is that with a little time, work, and patience, homeownership can be a reality. You just need to find the right professionals to help you.

Repairing your credit can be complicated and frustrating. It's not for the faint of heart, and it's probably not for buyers to take on by themselves unless they have endless time, patience, and knowledge of how the system works. Buyers really want to make sure they are working with a lender who has experience in this area and who can guide them in the right direction.

It is recommended to start fixing any credit problems a full year before applying for a mortgage, ordering your credit report, dealing with debt, and working on any credit scores that don't qualify; for an FHA loan, you need to have a median score of 620 or higher on the three credit reports (Experian, Equifax, and TransUnion). The higher the median score, the more likely it is you will qualify without extra effort and the better your interest rate can be.

 Keeping the balances of your accounts low, paying your bills on time, and having some account history will keep raising your credit score. The last two items simply take time-all you can do is pay your bills on time every month and wait for your account to show your on time payments. However, the first one is easier to do. The credit reporting agencies prefer that you have a balance below 30% of your limit, although even getting them below 50% helps.

If their are errors on your credit score, you can write to the credit reporting agencies and asking them to remove the item or make the necessary correction. If they claim that the information is correct, your next step would be to write to the creditor to ask them to report the correct information. Creditboards also suggests writing to your creditors to ask for a "goodwill adjustment" and remove late payment notations from your credit report. They don't like to do this but it's worth a shot!

Also, contact a Mortgage broker. Mortgage lenders prefer prime applicants, and some lenders won't offer no-money-down mortgage loans to people with bad credit. Mortgage brokers have relationships with several banks and mortgage companies, and they'll help you find a lender. Because brokers work on commission, inquire about fees before choosing a company. A knowledgeable lender will be able to tell you how much you need to come up with for your down payment and recommend any available grants or assistance programs to help offset the costs.

Check out: How to Pick the Number One Real Estate Agent in Birmingham

 For a Federal Housing Administration (FHA) loan, the most common loan type for first-time homebuyers, the minimum down payment is 3.5 percent. "However, a number of nonprofits can help middle-income buyers with down payments," said CNN Money. "Some buyers are able to get a home with no down payment at all." There are also federal programs like the Federal Home Loan Banks' Affordable Housing Program (AHP), one of the largest private sources of grant funds for affordable housing in the United States. See FHL Banks for more information.  If you qualify for a conventional loan (the least-expensive type, which conforms to tougher rules written by giant mortgage companies Fannie Mae or Freddie Mac) you'll need a down payment of at least 5 percent.

 Last, closing costs can be one of those unexpected expenses that can throw you a ringer if you are not prepared. They range between two and seven percent of your loan amount - but before you panic and decide you're definitely not you aren't able to purchase a home, there are ways to get help here too.  There are assistance programs that offer down payment funds that often allow funds to be used to pay closing costs. Depending on the strength of the real estate market in the area in which you are buying, the seller may kick in closing cost assistance and a good lender may be able to figure out an equation in your loan parameters to offset closing costs through a credit.

Success stories are out there, but it is a lot of steps, frustration, and finding the right people to help.

If you would like more information on home for sale, or are first time home buyer not working with a Realtor and would like to schedule a consultation with a qualified Oakland County and Macomb County Realtor, please complete the Lang Premier Properties contact form to have a real estate agent contact you. 

 Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Max Broock in Birmingham, Michigan. See what past clients have to say about Stephanie Lang.  Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.


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