Two Alternative Ways to Buy a Home With Bad Credit

Many people believe they can't purchase a home for sale if they have bad credit. While it's true a low credit score can make it challenging to secure financing for a house, there are several alternative routes you can take to become a homeowner. Here are two that may be appropriate for you.

Get a Tiny House

If you're into a minimalist lifestyle, rethinking the type of home you purchase can help you find one cheap enough that you can purchase outright with cash. Specifically, tiny homes offer an affordable way to become a homeowner while also offering a unique living experience.

Tiny homes range in price, from as little as $8,000 to as much as $100,000, depending on the size and features. However, you can expect to pay around $50,000 to $75,000 to have a builder construct one from the ground up. For comparison, a 1,500 square foot house costs around $290,000. You could get a tiny home for about the same price as the 20 percent down payment you'd need to purchase a traditional home.

Be aware, though, that tiny homes are called that for a reason. They average between 100 to 400 square feet in size, which makes this type of house most appropriate for one to two people. However, if you own the land the home sits on, you can always expand the structure as you obtain more money.

Seller Financing

If you don't have the cash to purchase a home outright or the tiny home life just isn't for you, another way you can buy a house when you have bad credit is to find a homeowner offering seller financing. In this scenario, there are no banks involved. Instead, you would make payments to the seller directly until the agreed upon purchase price was paid in full.

However, sellers who offer financing will typically only let you make payments for a short period of time (e.g. 5 years) and require you to make a balloon payment at the end of the contract. Additionally, the interest rates sellers charge tends to be higher than those charged by banks. Still, if you work to improve your credit while you're making payments to the homeowner, you may be able to qualify for a traditional loan at a lower rate by the time the payoff date rolls around.

For more information about alternative home ownership options or assistance with finding the right house for you, contact a real estate agent.