Having an insufficient credit rating to be approved for a traditional home mortgage is nothing to be ashamed of and may have little to do with your current income or ability to pay. Unavoidable life situations can arise that can make it difficult to meet financial obligations for a period of time, including a divorce, a death, or personal or family health issues.
But once the crisis has passed, it may seem impossible to move ahead with getting mortgage approval and becoming a homeowner, even though your income and situation has stabilized. If you have been turned down for a traditional mortgage, here are some potential options that may help you successfully purchase a home.
Check out USDA mortgage options
The United States Department of Agriculture offers home loans under its Rural Development Program. While not available in all areas or to every applicant, these loans are intended to help borrowers with low incomes or past credit problems become homeowners. Prospective borrowers should be aware that homes purchased with this type of loan must meet certain criteria, including income, condition, location, and size.
Look for owner financing
Property owners are another source of financing for homes that prospective buyers should consider when traditional home loans are no longer a viable option. In an owner-financing arrangement, the property owner acts as the lender with the buyer making payments to them, as agreed in the purchase contract.
Similar to a traditional mortgage through a bank, the property owner and the buyer sign a legal contract with agreed-upon terms, such as how possession will be given and how the mortgage will be repaid. Documentation should always be filed and recorded with the county recorder to protect the interests of both the buyer and the seller. Prospective buyers who are considering this type of no-credit lending option should understand that the seller can foreclose if the buyer defaults, in much the same way that a traditional lender pursues foreclosure.
Seek out manual underwriting options
Prospective home purchasers who have no or poor credit that has now stabilized may also be able to qualify for a home loan by seeking out a lender who offers manual underwriting as part of their approval process. As the name suggests, manual underwriting allows the underwriter to examine details about the buyer that computerized underwriting programs are designed to overlook, such as timely rent and utility payments.
To learn more about USDA home loans, manual underwriting, owner financing, and other ways to purchase a home with no or poor credit, make an appointment to discuss the matter and your options with a reputable real estate agent or mortgage broker.
For more information, you can also contact a company like SWE Homes.Share