How to Buy a House With a Bad Credit Score

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Buying a house with a bad credit score can be done by finding a desperate seller who needs to get rid of the house and is willing to negotiate, and any house with a "for sale" and a "for rent" sign is a good place to start. Negotiate with the seller of a home to lay out the terms of a lease or mortgage with advice from a credit repair consultant in this free video on personal finance.

Part of the Video Series: Credit Ratings & Bad Credit
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Video Transcript

Hi, my name is Stetson Lowe, and in this clip, we're going to be talking about how to buy a house with bed credit. First of all, you have to understand that there are people who own homes right now who want to get out of them and, for one reason or another, they're in financial hardships. You know, they're out of money and not able to make their payments and they really need to sell their house. So the best way to find these people are to look for motivated sellers with signs that say, "Must go." Or a really good insider tip that I've found is to look for a home that has a for sale sign and a for rent sign as well. That's a good indication that they are desperate, and they're even willing to lease the home in lieu of selling it outright. These people are good to contact and to begin negotiating a lease option with. A lease option is where you preset a term, usually two to five years, that you will lease the home back from the sellers with the option to buy at any time at a preset amount. Okay. For example, if you find a home that's valued at 250,000, and you contact the sellers about purchasing the home, what you'll want to do is to set up an agreement with them or a lease option to purchase...to have the option to purchase that home for whatever the sellers will agree upon. Sometimes it's the current market value. Sometimes they want to pad the current market value by 10,000 dollars to take into account that they're not selling it outright. So you may end up signing a lease option to buy the home for 260,000 at some point during the next one to five years. Then you proceed as if you're on a normal lease, and pay a monthly payment. It's a good idea to use a third-party escrow company that you make the payment to who, then, turns around and makes the lease payment directly to the seller's mortgage company. That protects you to know that your payment...the mortgage company on the home you're leasing is being paid. Otherwise, you may be paying the lease money to the sellers and they might not be paying the bank, which would put you in a place of losing your home that you're living in, due to foreclosure. So a third-party escrow company's great to use. Then you just proceed as if you're in a normal lease until you have fixed up your credit to the point where you are able to then qualify for a mortgage, at which point, you've already preset a sale price in that lease option. And you proceed, being able to use the equity in the home. So four years have gone by and the home's gone up in value by 30 or 40,000 dollars. You can now use the new appraised value as your starting point to base your loan to value on, thereby eliminating the need for a down payment. This is...this is with all conventional lending. As long as you take...keep good information and records of when your lease option was signed, have it notarized, and then keep copies of your checks that you pay as part of the lease each and every month until the time comes where you qualify for a mortgage. You'll need to provide probably the last 12 months of your lease and the notarized, signed lease option that you signed right when you began the process and provide that to your new mortgage lender who will review that and allow you to use the new appraised value as your loan to value ratio starting point. It's a great way to get into a home with bad credit, and help someone else who needs to get out of their home, and it's a win-win for both people.

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