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Could bad credit ruin your dreams of home ownership? See more real estate pictures.

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Well, the short answer is yes, but there's a lot more to it. Whereas a few years ago you could get a subprime loan without much trouble, the mortgage mess has led to a lot more caution in the way home loans are approved these days. If your credit needs work, there are still some things you can do to maximize your chances of getting a loan, but you should really ask yourself some hard questions before you put much effort into finding out what loan options are available to you.

Is Buying a Home a Good Idea for You?

It's true that circumstances have changed a lot in the last few years, and new loan limitations are making it hard for people to get in over their heads, but at some point you have to ask yourself, in light of the things in your credit report, can you handle the pressures of owning a home right now?

To qualify, you may have to accumulate a large down payment or accept a higher interest rate than you might like. You may also have to wait a couple of years for the clock to run out on a foreclosure or bankruptcy limitation. Home ownership is the biggest monetary investment many people make in their lifetime. Before you take the plunge, be sure you know owning a home is what you really want.

Planning for a Secure Future

Real estate values will probably stabilize, and the market may eventually gain back the value it's lost, but probably not without some fits-and-starts along the way. If you have the determination and are willing to take your chances, read on. If not, you can always use the time and energy you'd have spent shopping for a house working on your credit instead.

Delaying your home buying plans for a year or two to reduce your debt and improve your credit score may save you money in the end. With some luck, you might even be able to find a motivated seller who's willing to work with you on a rent-to-own arrangement. In that type of scenario, you could help accrue a down-payment while improving your credit rating at the same time.

Solutions to Buying a Home with Bad Credit

If you're determined to live the dream now and buy a house no matter what, then there are steps to take on your path to the ultimate debt. When your FICO credit score (the score lenders evaluate when deciding to loan you money) is below what's acceptable to conventional lenders, one popular option is to apply for U.S. Federal Housing Administration (FHA) loan insurance. The FHA helps people qualify for loans by assuming the risk if the borrower -- that's you -- defaults.

FHA insurance has helped secure more than 37 million home mortgages since 1934, and it can be a great way to get into your first home with a low down payment and a sparse or negative credit history. You have to show some current financial responsibility, but you aren't automatically discounted because of a bankruptcy or past foreclosure [source: HUD].

Another way to go is to find a seller who'll carry the note. If you have a relationship with a potential seller, and he trusts you, this may be an option. Along those lines, you may also be able to get a family member to help by co-signing on a loan.

You may also be able to locate a lending institution that will give you a chance, but at a steep price that usually translates to a high interest rate. Subprime loans, or loans for people with less than stellar credit, aren't popular in this economic climate. Things are tight now, but as the housing market improves, the options will probably get better. Almost any way you slice it, getting your own little piece of the American dream without good credit will cost you more money than if you were a better credit risk.

Before you start running up a gas bill looking for a house with the perfect garage or garden, get a copy of your credit report to learn exactly where you stand. If there are any erroneous details that are making your financial situation look worse than it is, you can straighten them out sooner rather than later. A few FICO points can make a difference, especially at the low end of the scale.