Credit Challenged? Don’t Worry, We’ve Got a Plan

Is your credit score below 600?

Unfortunately it just became much more difficult for you to buy a home. And in our mind that isn’t neccessarily a bad thing.

Heard the first-hints of this last week and now this week it sounds like things have really started to shake-and-move. The nation’s third-largest sub-prime lender will no longer have anything to do with sub-prime loans and the largest is no longer doing 100 percent 0 down loans. And this is effective NOW. Have a pre-approval? Tough, it’s null and void today.

Senate Bill 185 is taking a lot of the “credit” for this, when it really should be going to a wising-up to investors on Wall Street. What has happened is that the risks for these sub-prime loans are becoming too much for investors — one report has 12-out-of-100 of these loans NEVER make a single payment.

So how can you buy a house with poor credit?

You have three basic options:

• If you absolutely need to be in a home TODAY, there are options. Work with a Realtor and a reputable and sound mortgage professional. If your credit score is close to 600, a good mortgage professional is worth every dollar in his ability to get you that extra-bang for your score.
• You could enter into a lease/option contract. You (as the buyer) agree to rent the home for “x” period and pay rent and at the end of the lease will purchase the property. This is better for those that have temporary issues with credit, i.e. discharging a bankruptcy or divorce.
• Rent and begin a Debt Management Plan. I know, I know, nobody wants to continue renting. However, often renting is the best way to reestablish your life — if the problem is debt-equity issues. For example, Toby is working with a young couple and they are currently in a lease-option on a home. They are paying $1200 for the home, when you could pay $800 for a rental property in the area. That $400 would go a long way to clearing debts if they put that money to use. It might take 6 months or 18 months, but this is the “safest” way to clean your credit and restablish your financial well-being.

The most important thing to remember is to keep your eyes open — if something sounds too good to be true it probably is. Read the fine print and get everything in writing. Don’t let your poor-credit scores become a red carpet for someone to rob you blind.

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