It’s widely understood that transforming a poor credit score is a process requiring a great deal of time and patience. There are many good reasons for requiring such an extended period of time to restore one’s credit score, and yet consumers saddled with a poor credit score are right to feel frustrated by the perceived limitations that accompany a low score.
Consumers interested in buying a home, however, should recognize that even though a low credit score might limit the financing options available to them, there is still a multitude of sound home financing options worth considering. Nonconventional loans, also known as bad credit loans, ensure that individuals have access to the financing needed to enter the real estate market in spite of poor credit history.
The federal government ensures several nonconventional loans through the Federal Housing Administration and the Department of Veterans Affairs to encourage lending to potential homebuyers with poor credit. With a down payment (typically ranging from 3.5 percent to 10 percent), even consumers with a credit score in the 500s can secure the financing they need to purchase a home. Subprime loans provide yet another option, and although this kind of loan is typically associated with a relatively high-interest rate, the current rates are actually quite competitive.
In addition to subprime loans and the loans insured by the FHA and VA, consumers with low credit scores might also wish to consider the benefits of hard money loans. A consumer’s credit rating is not the determining factor in the loan approval process; instead, the value of the property in question is utilized when the decision to approve or deny the loan is made.
A hard money loan, which is also referred to as a hard equity loan, usually carries a comparatively higher interest rate and is thus viewed as a temporary loan solution. This kind of loan is often preferred by real estate property “flippers,” but it is also useful as a tool for quickly improving a poor credit rating with the goal of eventually refinancing.
Clearly, a poor credit rating does not necessarily prevent a consumer from accessing the real estate market. While certain financing options may be out of reach for some consumers dealing with a low credit score, many fine options are nonetheless available. Whether it is a loan insured by the federal government, a hard equity loan approved based on the value of the home or any of the other bad credit financing options currently available, consumers with poor credit should recognize that their credit history will not shut them out of the real estate market.
