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How to Buy a House

By - 2006

There are many people who will tell you how to buy a house, but they only explain the process, assuming you are ready and able to buy. But what if your problem isn't that you need help with writing an offer or closing the sale? What if you have bad credit or low income or no down payment and it seems that there just isn't a way to get into a home of your own?

The requirements for mortgage loans are being tightened again. Most lenders are once again asking that you have a down payment, and a decent income. And though a few short years ago a bad credit rating simply meant paying a higher interest rate, now it can mean not getting any loan. However, there still is hope for those with these problems. Lets look at how to buy a house when the bankers say you can't.

How to Buy a House with a Low Credit Score

If your credit problem isn't too serious, you may still be able to get a traditional loan in several ways. To begin with, you can correct any errors on your credit report, and challenge any entries you think shouldn't be there. This is your legal right. If you can get it changed, then once those changes are reflected in your credit score, you may be able to apply again and get a loan for that home.

You also can go only to lenders who hold their own loans "in house." This means they don't sell them into the secondary market, which means the loans don't have to meet certain requirements. A bank which holds its own loans can make there own rules (to an extent). Ask around to see if some of your local banks or credit unions keep mortgage loans in their own portfolio.

A more creative way to overcome bad credit is to buy a house with another person. This isn't only for married couples. Any two people can buy a home together, and the lender will look at both credit histories. It might be tricky to buy a house with a friend, but it can be better for both compared to renting. For example, you might have a down payment, and your friend could have good credit. You could agree to sell the home five years later to recover your down payment and each of your respective shares of the equity that is built up from appreciation and the paying down of the loan.

Seller financing as another way to buy when you can't get a loan because of bad credit. I've seen homes sold without credit checks and even with nothing down by sellers who financed the purchase. Their motivation is usually to get a higher price and /or to sell a problem property, but this doesn't rule out a good opportunity for you. When sellers don't offer terms, find out if they own their houses free and clear. If so, make offers that involve payments to them rather than getting a loan from the bank. Offer a bit more than they expect if you can, and you will be more likely to convince them.

How To Buy A House With Little Cash Or Income

Perhaps a lack of cash is your problem. If so, you can start by making high offers on those houses that might be sold with zero-down seller financing. Buying a home with a friend who has a down payment is another possibility you might look into. A few mortgage lenders out there still offer zero-down loans too.

A proven method no one seems to like much is to save the money for a down payment on a house. You'll have to put off owning a home for a while, but that may be a good thing. As an example, in 2005 it cost $600 more per month to buy a house than to rent an apartment in some towns. Had you been able to afford the house, but had no down payment, you could have banked the $600 you were saving by renting each month. Three years later you would have about $23,000 for a down payment, and meanwhile home prices fell. Not a bad deal.

If your problem is low income it may not be the right time for you to buy a house, especially if the cost of buying is significantly higher than the cost of renting where you are. But if it it will cost you about the same each month to buy as to rent, try everything above to get into a home. Rent can rise faster than the cost of owning a home, particularly if you are wise enough to get a fixed rate mortgage loan.

There are also cheaper options than the usual starter homes real estate agents push you towards. For example, my first home was a mobile home on a small lot that cost less than $20,000. I later sold it for $45,000. The monthly payment was just $257, which certainly beat renting. You can also see that the idea some have about mobile homes not appreciating is just plain wrong (the land is where the value is).

Other ways to buy a house when your income is low and you have no money? If your income will be rising soon, you might look for a lease-option arrangement. Rent a house on a monthly basis, but with an option to buy it at a set price within a set time (try for two years). This gives you time to save money, improve your credit, and increase your income, so you can get a loan the usual way.

Purchasing a small lot for is another way to get into a home. Often the sellers of small lots don't worry about credit ratings, or large down payments, because they know you can't damage a piece of land as easily as a house. They feel secure selling their land with little or nothing down and they enjoy the interest they collect. Of course, your goal is to get your finances and credit in shape as you make those payments. Then you can get a mortgage loan in a couple years, and put a house on your property.

Keep looking at all the possibilities out there. I used to know an unemployed man who bought a four-plex with nothing down and used the rent from three units to pay all the bills while he lived in the fourth. There is almost always a way to buy a house if you persist.


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