Let’s face it, the recent mortgage and housing crisis has left millions of potential home buyers with bad credit. Buying a home with bad credit often leads to new credit headaches, that at times can lead to legal issues. Many consumers seek out risky “creative financing” offers since banks will not approve of them. While it is always best to fix your credit issues prior to buying a home, many people choose to do the opposite. Below are the 3 biggest mistakes I see most often.
Mistake 1: Depositing a large down payment
It is fairly common that home sellers who offer creative financing like rent to own, land contracts and owner financing want LARGE down payments. Many of these down payments are nonrefundable if you cannot obtain long term financing within a certain period of time. I have heard stories from consumers who have lost over $10,000 due to their inability to get long term financing. The less you have invested, the less you stand to lose.
Mistake 2: Entering a short time frame agreement
Many creative financing offers come with VERY short term time frames for you to secure permanent long term financing. The longer you have to secure financing, the better your chances are of getting your credit issues fixed. Fixing credit issues generally takes time to make sure you have the time needed.
Mistake 3: Signing an agreement you don’t understand
Every day I hear consumers complaining about how they have ripped off or some other terms not suitable for younger readers. While many consumers may, in fact, have been a victim of a rip off scheme, many fail to understand they entered into an agreement they either did not read or simply did not understand.
Buying a home always includes some sort of written agreement. With the creative financing options, the terms of the agreement can vary greatly. It is so important you understand the terms you are agreeing to prior to signing. After all, if you don’t understand what you are agreeing to, how would you know if you can honor your end of the agreement?
Buying a home using creative financing is not always bad, it just comes with more risks than a traditional home purchase. I suggest taking your time and not rushing into any deals that sound too good to be true. The last thing you want to do is have new credit issues by entering into an agreement that you cannot honor. You may want to consider improving your credit by following tips from the FTC or by entering into a professional credit improvement program like the Home Sweet Home Program by CureMyScore.com or another similar credit help program.
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Credit Reporting / Scoring Expert, Chris McConville is the President of Credit Education at CureMyScore.com and founder of myexpertcreditwitness.com where he works as an Expert Credit Witness in both Federal and State Court. With working in the credit and mortgage fields since 1991, he’s dedicated to sharing his knowledge to educate consumers.
