Home Loans with Bad Credit: Two Options

Trying buy a home these days can be both very exciting and very frustrating. With the real estate bubble bursting in the late 2000s, home prices are lower than ever, which makes homeownership often cheaper than renting for many people. However, for those with low credit scores, trying to find a bad credit mortgage is a challenge. The good news is that there are two options available to you, even with less than perfect credit.Option #1: Federal Housing AdministrationThe Federal Housing Administration or FHA was founded in 1934 as a means for the government to help encourage home ownership at a time when no one could buy a home. As a self-funded federal agency (that is, no tax dollars go towards its support) the FHA offers loans to individuals who need help buying a home due to credit problems or because they do not have a sufficient amount of money for a down payment.Qualifying for an FHA backed mortgage will allow you to work with banks and other private lenders who would otherwise turn you away due to your bad credit. This is because FHA insurance guarantees the value of the loan to the bank and assumes the risk involved in dealing with home buyers with shaky credit pasts.FHA loans are specifically designed to help first time homebuyers and those interested in purchasing “fixer upper” properties – the latter of which will allow you to borrow enough money to finance renovation as well as the home itself. If you fall into either of these categories, an FHA loan should be your first stop.Option #2: Private LendersThe term private lenders refers to lenders who operate outside of traditional banks and credit unions. Generally, private lenders can be accessed online these days. Using a private lender gives you many more option in terms of bad credit loans and will also allow you the freedom to compare rates and other terms among several different companies.If you are interested in getting a mortgage loan from a private online lender, your first step will be to do research and identify several different companies that specialize in both bad credit lending and home loans. Once you have this list (a good number is between 3-5) you should contact each of the lenders on it and discuss your financial situation, your desires in terms of a home, and how much you believe you can afford to pay each month. Allow each of the lenders you identify to submit a bid that includes a pre-approval amount, the rate of interest they will charge, and a complete explanation of all terms, fees and penalties that will go along with your new home loan.Get the Best DealIdeally, if you have bad credit you will be able to submit bids from several online lenders for a mortgage and then compare their rates and terms. Once you have all those numbers before you, it will be easy to spot the best deal and work from there.Just because you have had credit issues in the past does not mean that you cannot capitalize on the amazing real estate market out there today. Just make sure that you investigate all the options available and find the package that will best suit your needs.