How to Buy a Home with Bad Credit

The great American dream of owning a home is, unfortunately, a nightmare to many buyers with bad credit. Traditional lenders will tell these loan applicants that if they can’t give them a home loan, no one will.

Fortunately, that is no longer the case. A new industry of sub-prime lenders has emerged that will now give home loans to borrowers with bad credit. Those loans may have higher interest rates and they may require higher cash down payments. They will also take longer to be processed, but eventually they will be approved.

The good news is that anyone, even someone with very poor credit, a bankruptcy or even a foreclosure, can get a loan to buy a home. The bad news is that it takes time and patience to get such loans approved.

Since traditional lenders won’t make sub-prime loans, bad credit borrowers need to know the difference between mortgage lenders and mortgage brokers.

Mortgage lenders are the companies that actually make the loans. Mortgage brokers, on the other hand, do not make loans but rather match borrowers’ loan applications with appropriate lenders. Sub-prime mortgage brokers therefore are specialists who match sub-prime loan applications with sub-prime lenders who they know will make loans to bad credit borrowers.

Sub-prime mortgage brokers are easily found on the internet. They will arrange to have at least four sub-prime lenders propose loans to bad credit borrowers. These loans can then be compared to each other and the most affordable loan can then be chosen.

Many such sub-prime mortgage brokers also offer credit repair services that will lower interest rates. Improving one’s credit score by as little as 10 points can lower interest rates by a half or even a full percentage point that will save hundreds and possibly thousands of dollars in interest payments over the length of a loan.

It is therefore never too late to start paying monthly bills on time. Paying anything, even if less than the required amount, will send the message to creditors that a borrower takes financial obligations seriously.