You may think that renting is the only option available when you have bad credit. That is simply not true. You can secure a home loan when you have bad credit by financing through the U.S. Department of Housing and Urban Development (HUD).
Step 1
Contact your local HUD agency. You can find a list of the agencies on www.hud.gov or by calling 1-800-569-4287. You might qualify for a federal mortgage program. If not, HUD offers special programs for families with bad credit. You may be able to purchase a home for as little as 3 percent down and have the closing costs included in the mortgage so you can pay them out over time. HUD helps by insuring loans through other lenders. The lenders will offer you a loan when it is insured by HUD because they are spared the risk of default on the mortgage. It's best to get pre-qualified for a loan before searching for your dream home so you can move forward quickly once you find a place you like. Plus, you will know what homes are within your budget.
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Step 2
Determine what you can afford. You will need to take into consideration your current monthly expenses, as well as the cost of the mortgage, interest rate, property taxes, and down payment. There are several calculators available on the HUD website to help you determine what you can afford monthly. Housing counselors are also available to help you figure out what's affordable to you so that you don't end up damaging your credit history even more.
Step 3
Start shopping for your dream home. HUD loans covers all types of dwellings, including mobile homes and pre-fab homes, so don't limit your choices. HUD also offers special loans on houses that need work (aka "fixer-uppers"). You can easily search online for HUD houses through the website and use the site's checklist to compare homes based on total square footage, number of bedrooms and bathrooms, energy efficiency, quality of the neighborhood, assessment of the school district, and convenience to local shopping and entertainment.
Step 4
Make an offer. First you will need to negotiate a sales price. The real estate agent will most likely take care of this for you. It will work to your advantage if the local real estate market is poor, the seller is in a rush to move, or the house has been on the market for a very long time. There may be several offers and counter-offers before you reach an agreement with the seller. When you are making an offer, be sure it is in writing. Be sure to include how long the seller has to respond to the offer before it is no longer valid.
Step 5
Get an inspection. After you have made an offer on a home and it has been accepted, you will need to have the home inspected and apply for homeowner's insurance. A proper home inspection will tell you about the physical condition of the home and anything that needs to be repaired or replaced. When shopping for home insurance, be sure you are insuring the home only and not the land as well. This will save you money. If you are trying to keep the cost down, consider raising the deductible, as this could make a big difference in your premium. Also inquire about discounts you can get for things such as security systems and smoke detectors.
Now you are finally ready to close the deal. All that's left to do is sign the papers and move in!
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