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	Your only unbiased source for mortgage and credit information. I don't take applications or "harvest leads." I help people of all credit types avoid ripoffs and save money - since 1999. -- Carolyn Warren

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People with Bad Credit Can Still Buy a Home

Insight from Industry Insider Carolyn Warren

People with bad credit literally had dozens of choices for getting a loan—last year. But thanks to a rash of foreclosures and investor problems for companies that specialized in doing loans for people with credit challenges, over sixty of these sub-prime lenders have closed their doors. Consequently, people with bad credit don't have a hoard of lenders beating a path to their door for their business. But so what? It only takes one lender for you to buy a house.

The idea that a person with a low credit score, or collections and a bankruptcy, can't get a zero down loan anymore is an unfounded and uninformed belief. Even though most lenders have become less lenient in giving approvals, people with credit issues can and still are becoming home owners every business day of the week.

The trick is in knowing how to structure the loan application and who to go to. If you apply with your local bank, you're going to get a big, fat NO, so don't bother. You shouldn't fill out online applications all over the Internet either. That's a great way to waste your time and harm your credit score even more with lots of credit inquiries.

It's better to work with a mortgage broker who has been specializing in sub-prime loans for at least two years. That way, you'll have a professional who already has relationships with wholesale lenders and who knows how to structure your loan application. Even so, you're going to need a couple strategies that work in today's market. Here's what I mean...

• There are certain lenders who have AU (automated underwriting) and DU (desktop underwriting) systems that spit out approvals when the loan officer inputs the data in a way that makes the computer program happy. For example, a recent first time home buyer with a low 527 score got approved for a 30-year fixed rate, zero down loan this way.
• Compensating factors is one of the best-kept secrets for getting approved. If your credit stinks, make up for it in some other way.
• Millions of dollars are available from pools of money owned by private investors. These are not bankers, but rather businesspeople who still see an opportunity in investing in people with low credit scores. Some of these investors don't even care what the person's score is; they're more concerned with the property itself as collateral. While they don't do zero down financing, they can present a chance to stop renting and own a piece of real estate for many people. Here's a case in point:

One couple had the worst credit I'd ever seen. Every page of their credit report was filled with late payments and collection accounts. Not one creditor had ever been paid on time by these people. Even the pizza delivery guy filed a collection for a bounced check. And yet, I helped them get approved to buy a lovely tri-level home with a nice, big back yard for their children and dog.

Some people might think folks like this don't "deserve" to own their own homes, but who are they to judge? Obviously, there was someone with $360,000 dollars to invest who disagreed and gave them a mortgage.

Getting the approval when you have bad credit is all about knowing the tricks of the trade. The sub-prime mortgage industry has been hurt by loans that went bad; but those loans are still the minority, not the majority. The sub-prime lending business is still alive and kicking. And as long as there's an open door for money to be made, it will remain that way.

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