Can We Buy a Home With No Money Down and Poor Credit?
Dear Monty: I have heard stories about people who have successfully bought a home without money and good credit. Are there ways to buy a home with no money down and poor credit?
Monty's Answer: We will assume you have a full-time job. For a person to buy property without money and good credit may be challenging to do. A significant factor will be why you have bad credit. Often, there were events beyond a borrower's control that created the problem. Here are some places to look for such a person, people or a mortgage loan company. This project may take a tremendous effort on your part. You are selling against the odds. You may have to make the pitch many times before you find a taker for your proposition. Position your request as a business proposition. There are several options to investigate.
No. 1: If you are a veteran, VA loans require no down payment. An online search in your computer's navigation bar will reveal mortgage lenders that advertise they specialize in poor credit loans. A recent history of re-paying your obligations on time for at least a year can go a long way in finding help.
No. 2: FHA loans require a 3% down payment, lower interest rates and better debt ratios. Customers can typically have a lower-than-average credit score and still qualify for an FHA loan. Not all mortgage lenders make FHA loans. Before closing, there are loan requirements to be met in the FHA process, such as repairs, appraisals and more. Some lenders do not want to invest extra time or train originators to handle these loans.
No. 3: Consider a crowdfunding website. Ask a friend to do this on your behalf. If your circumstances are compelling and justify your position, put a plan together to raise cash to make a down payment. There are many such sites, one of which has a section for "basic necessities." Housing is a basic necessity.
No. 4: Find a co-signer with money, good credit and enough tangible assets that will stand behind you as a co-signer. Typically, this would be a close friend, relative or occasionally an employer. Someone who knows you and believes you can and will honor your commitment.
No. 5: Find a property owner who will sell their property to you on a land contract with no down payment. These property owners may be difficult to find. Still, I suspect if you have a credible story and a plan laid out about how you will make the payments, it is possible to find a person such as this. The best place to discover these owners are the local municipal treasures office (tax collector). They will have a list of delinquent property owners. A real estate agent with access to the local multiple listing service is another good source. They can search for homes with extended periods on the market and houses that have been on the market for years.
If you are not successful in finding a solution here, do not give up. If you can take a part time job or secure a higher paying job through specialized training, you have changed your circumstances. Many lenders will re-open the mortgage window to you in three to five years, possibly sooner.
Richard Montgomery is the author of "House Money - An Insider's Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com
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