Buying a home with poor credit is expensive, but possible

Subprime lenders can help nearly anyone buy a home .... for a price

One of the things that have been stressed both here and elsewhere about buying a home is the importance of fixing your credit before you buy a home. Purchasing a house is an expensive proposition and one that you will likely be paying for over a period of decades. That being the case, the better your finances when you start out, the less money you will have to pay for that house when you buy it. So most lenders stress that it is very important that buyers start to examine their finances six months to a year before they buy. You can start by checking a copy of your credit report. If you have errors or unpaid debts, you should take some time to fix them. That way, when it comes time to apply for a mortgage, you will have the best possible credit report and that will offer you the best possible financial terms from the lender.

It doesn’t always work out that way, though. Sometimes, you just need to buy a house right now and you don’t have time to fix the problems. What can you do under those circumstances?

What you can do if you simply don’t have the time or inclination to fix your problem credit before you buy is talk to a subprime lender. The term subprime means “less than prime” or “less than ideal.” There are lenders who actually specialize in dealing with people who have credit that is not perfect. From a lending perspective, this often means buyers who have a FICO score of 620 or less. Many of these lenders are actually just small divisions of larger lenders. Ameriquest and Wells Fargo are among the largest subprime lenders in the United States.

Applying for a mortgage with a subprime lender works much as it would with a traditional lender. They will still want to see your credit report and score and they will still do some research into your financial background in order to see if you are likely to repay the loan. The process is nearly the same as it would be for anyone else. The one difference is the price. If you are offering the lender a financial history that is less than perfect, you are offering the lender increased risk of default. No one likes to lend money to people who will not repay it, and in the housing business failure to pay means foreclosure. Lenders don’t like to have houses come back to them; they would rather deal in money than in property. In exchange for obtaining a subprime loan, you will pay more to get it. The interest rate that you will pay for the loan will be higher than for a traditional mortgage, and the fees that you will pay to get the loan will be higher, as well.

That may not be the perfect scenario, but at least there are lenders who will work with people with financial problems. If you take out a subprime loan today and you can repair your credit over the next several years, you can then refinance your loan to obtain a more favorable interest rate.