Buying a home with bad credit and no down payment is not impossible, it just takes some work

Every day someone in the US is buying a home with bad credit and no down payment. If you have bad credit and no money for a down payment, that could be you.

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BUYING A HOME WITH BAD CREDIT AND NO DOWN PAYMENT – FIRST THINGS FIRST

The first thing you must do if you’re buying a home with bad credit and no down payment is prove you can make mortgage payments, despite what your credit history shows. You’ll need recent tax returns, W-2s, bank statements and pay stubs. If you have other income sources, you’ll need to bring that to the table too.

If you have debts, like other loans, medical bills or some other kind of payment, make a list of these as well.

Your recent and current economic situation, as well as what happened in the past, gives the lender a good idea of your ability to repay the loan.

A good example of someone who is probably eligible for buying a home with bad credit and no down payment is someone living in an area that was hurt badly in the recession. The person lost his job when a local plant closed. A new plant comes to town, and he goes to work there.

If that company has a solid track record, and the home buyer had a good employment record at the prior company, then lenders will look favorably on this.

GOVERNMENT LOAN

Writing in the San Francisco Gate, M. Shayne Arcilla, says, “Although credit availability and underwriting standards for most lenders are strict, there are options available to those who experienced financial hardship and had no choice but to face a foreclosure or a bankruptcy in the recent past. The federal government has created mortgage programs to help stabilize the housing market and help downtrodden homeowners get back on their feet.”

The Federal Housing Authority (FHA) makes mortgages. FHA loan requirements are different than Fannie Mae and Freddie Mac. Bankruptcy and foreclosure are not automatic disqualifiers. FHA loans do require some down payment, 3.5 percent is usual.

It’s possible you could borrow that much on a secondary loan. Family might be able to give you that much. Some organizations offer down payment help as well. Some states also offer programs for buying a home with bad credit and no down payment, especially for first time home buyers.

COSIGN

A cosigner will greatly improve your chances of getting a loan if you had bad credit or no credit. The cosigner is agreeing to make the loan payment if you don’t.

The cosigner can also make the down payment.

You and that person set the terms for repaying that money. In other words, you are buying a home with bad credit and no down payment based on the cosigner’s credit.

BUILD IT

Some groups, Habitat for Humanity is the most well known, help people get into homes for sweat equity. In other words, you help build the house. You also agree to help build houses for other people.

The work you put in counts as your down payment.

All you need is the ability to pay the mortgage. Some of these organizations even carry the loan.

OWNER FINANCING

This can be the easiest route to buying a home with bad credit and no down payment. It can also be the most tricky. It’s easy because you deal with the owner exclusively. You and the owner draft the mortgage terms.

It’s tricky because unless you order it, there is no title check to make sure the house is clear of any liens.

Likely you are also responsible for recording the deed at the courthouse to make sure your purchase is properly recorded. Most of the time a real estate attorney or closing agent takes care of this.

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