When considering any major financial move, your first step should be to review your credit reports from the three major reporting agencies. Correct any problems with these reports before pursuing any sort of financing. A reputable mortgage broker may be able to help you determine what sorts of financing are options for your financial situation. Look carefully at terms and interest rates before considering a mortgage in the sub-prime lending market. Do expect that your interest rates will be significantly higher than they would be if your credit was better. Some buyers opt to take a higher interest rate loan, work on their credit for a few years, and refinance in the prime lending market. Look at the total costs involved in this process before moving forward with a home purchase under these circumstances. You may find that it is a wiser financial move to continue renting while you work to improve your credit score.

Owner financing is another popular option for buyers with poor credit. Owner financing can simply be an individual selling his or her own home, looking for a quick sale. In this instance, the financing terms may be reasonable and fair. If so, this can be a good choice for a homebuyer that cannot qualify for a low interest home mortgage. In other cases, builders or developers offer owner financing. While the interest rates on these loans may be reasonable, if somewhat higher than prime rates, they are typically short-term loans with a balloon payment at the end of a set period. You will have to qualify for other financing during this time, or simply walk away from your investment.

While a lease to own method of purchasing a home is can be financially reasonable, buyers who qualify for home financing at a good rate should choose that option. In a lease to own agreement, the buyer pays a fair market rent, as well as an option fee, typically 1% to 5% of the price. This fee is credited toward the purchase of the home, as is a monthly rent premium. In exchange, the buyer has a purchase option, and will have some equity in the home when they exercise that option. These contracts typically run for several years, and can offer the buyer the opportunity to improve their credit and qualify for a mortgage in the prime lending market. Many buyers with poor credit will find this a better financial option than qualifying for a sub-prime mortgage. Unlike the rent to own merchandise industry, some buyers will find a rent to own agreement a viable means of entering into home ownership, improving their credit, and moving toward a better financial future.

Should you buy a home with poor credit? That answer will vary depending upon the terms of the purchase agreement. It can be a reasonable financial decision, and allow you to enter home ownership earlier than you could have otherwise. However, you should keep in mind that buying a home under these terms requires that you actively work to improve your credit and seek better financing terms within a few years.