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Can You Buy a Home with Bad Credit?

Updated on August 1, 2011

Buying a home with bad credit is harder now than it used to be, but that doesn't mean that you're out of options. Below are some alternatives and strategies to consider:

Consider Your Alternatives

While purchasing a home may seem like a very attractive option to you right now, it might not be the best long-term choice - bad credit or not. In addition to taking on a mortgage when you purchase a home, you're also taking on what may be hefty property taxes, not to mention the burden of maintenance and repair of your home.

For many people, renting a home makes financial sense. Renting might not be as traditionally 'satisfying' as owning a home, but it can save you a lot of money in the long term - not only in terms of high interest loan repayment, but also in the form of home maintenance, remodeling, and repair - not to mention the valuable time you would have to spend on all of this maintenance.

Carefully evaluate your motivation for buying a home - do you really need to own a home? Do the benefits outweigh the cost? Would your monthly mortgage be more than the rent for an equivalent property? For how long do you intend to live in this place? What is your employment situation like? Chances are, you'll find renting to be a very attractive alternative.

If you're willing to relocate to a less expensive area, you might be able to purchase a home without a loan at all!
If you're willing to relocate to a less expensive area, you might be able to purchase a home without a loan at all!

Start Saving

Those with bad credit will be expected to provide a higher initial down payment on a home than those with good credit, so be prepared to pay more up front for your home.  In other words, start saving now!

If you have bad credit, you may want to avoid getting a home loan altogether. In that event, it may be worth it to save for a home so that you can purchase it outright - if you decide that home ownership really is a better alternative for you than renting. Obviously this is not a feasible alternative if you're scraping by as it is, however some individuals with bad credit simply have bad credit because of an unfortunate identity theft debacle, declared bankruptcy within the past ten years, or experienced something else not necessarily related to their current ability to carry and pay off debt in a responsilble or timely manner.

To be honest, if you have the time and ability to save for and purchase a home with your own money, this is the best way to go. Avoiding loans and having to pay interest for decades on end is always favorable!

If owning a home is important to you, and if you would like to purchase a home with money you have saved on your own, but cannot afford a home where you are currently living, you might always consider relocating somewhere where property costs less - this might involve relocating within your country or even moving to a new one. Depending on what you do for work, it might make a lot of financial sense to relocate. The decision depends ultimately on your your unique mixture of several important factors: personal preference, relatives and family, employment status, language skills, legal situations in different countries, and your attachment to local culture, friends, and climate.

Take time to improve your credit

If you decide that it really is important for you to own a home, and you know that it will be impossible to save up and someday buy one with cash up front, it might be worth it to take some time first to improve your credit before taking the big plunge.

To help bolster your financial reputation, espeically focus on:

  • Hold onto constant employment for 2+ years
  • Aim for steady, constant income
  • Focus on saving
  • Pay bills on time; don't fall behind on payments

All of these things act as proof to potential lenders that your financial reputation is on the mend.

Improving your credit can save you from extremely high interest loans, plus also give you some time to really research what you're looking for in a home - as well as develop stellar house-hunting skills and learn your way around the real estate market.

While waiting can be a frustrating and trying alternative to forging ahead (especially in an age of instant gratification), you stand to gain a great deal from avoiding haste in this case. When it comes to buying a house, it's important to be standing on solid financial ground, and even if you have good credit, it would be imprudent to rush into the house purchasing process.

Take time to assess your situation. Improve your current finances. Improve your credit. You'll find that purchasing a house with better credit will be much easier than forging ahead right now.


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    • Simone Smith profile image

      Simone Haruko Smith 7 years ago from San Francisco

      Hahahahahhhhhh just warming uppppp!!! Since I don't get to enter, I figure I might as well start posting now ^_^

    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      Great points, Simone....this looks suspiciously like the January theme....hmmmmm