Home ownership has always been the American dream.  Who wouldn't want to own a home? None of us really want to pay rent because it would be a lot nicer to live in our own place. However, that dream seems unattainable for those that have a poor credit history. I wanted to provide some honest advice that can help these individuals out.

Today there are many mortgage loans available to individuals that have bad credit.  These loans are specifically designed to help people with low income, poor credit history, and little or no down payment on the purchase of a home. Sure, they aren't as available as they were two years go, but it's still possible to find this type of loan.

If you're going to get a loan of this type, you'll have to jump through a few hoops. You're asking the bank to take a huge risk on you, and you need to help them lower that risk. There are a few different ways that you can do that.

First of all, you can save up so that you have a hefty down payment. I know that this won't be possible for everyone, but it will certainly help you to close a loan. If you don't have a down payment at all, it might be difficult to get mortgage loans for bad credit.

Secondly, you can find a home with a lot of available equity. In today's market, this actually isn't that difficult. There are a lot of people that are in trouble on their homes and for that reason, there are some great deals available. The bank is going to be a lot more likely to take a risk on you if the home you're buying has equity built in. That means that your home needs to be worth more than you're buying it for.

Thirdly, you may need to find another person who can co-sign on the loan. I know that you probably don't want to deal with this, but it may be a reality for you. The best thing to do is talk to a loan officer at the bank - they should be able to tell you whether this is going to be necessary for you or not.

At the beginning of the 21^st Century, Interest-only mortgage loans became very popular.  To understand an interest-only loan, let me first explain how a conventional loan works.  Typically monthly mortgage payments involve a portion of the payment to be paid towards the principal balance of the loan, and a portion to be paid towards interest.  The way the loan is structured is usually called amortization.  In order to pay off a loan in 15 to 30 years, one must “amortize” his or her loan.  This means that a specific amount of money must be paid each month, some being paid towards principal and some towards interest.

An interest only loan is different in the way it is structured.  Rather than the monthly payment be amortized towards principal and interest.  It is structured so that you only pay interest for the first few years.  The term that you pay interest always varies.  Homeowners can choose between three, five, seven, or ten year periods they are only paying interest on the loan.  After this period ends, the homeowner must begin making payments toward the principal along with the interest.

Why would anyone ever apply for an interest-only loan?  If real estate markets are appreciating rapidly, an intrest0only loan may be a good option for buy a home as an investment.  You can make a lower monthly payment and build equity in your home over a short period of time. 

Although there are advantages to interest only loans, there are also disadvantages.  Interest only loans are usually much more expensive than any conventional loan over the life of the loan.  After the interest-only period ends, you still owe the original loan amount.  The payment towards the interest and the principal balance will also increase.  This increase can sometimes be as much as 40%.  Most homeowners are not able to afford such large increases. 

If you plan to occupy the home for a few years, a conventional loan may be a better option.  On the other hand, if you do earn a good income and can afford higher mortgage payments, you may benefit from an interest only loan.

I personally wouldn't opt for an interest only loan, especially in this market. They were useful when prices were going up year after year, but now they're not that smart to use. In many cases it would be better to pay rent than it would be to get an interest only mortgage, simply because you don't have as much risk.

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