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How to Buy a House with Bad Credit and No Money Down

Buying a house with bad credit and no money down seems impossible in today’s market. After all, no bank will touch a person with bad credit and no money in savings.

Fortunately, a real estate guru knows the big secret to buying a house, even when you have no down payment and a terrible credit score.

Buying a House With Bad Credit and No Money Down

Carter Brown, a real estate coach for Prosper Learning, explained that one of the big tricks to buying a house with bad credit and no money down is called “subject to financing.” Let’s consider two imaginary couples to show how this strategy works.

Sheldon and Shelly own a home that they, along with their two children, live in. When Sheldon loses his job, he and Shelly quickly realize that they cannot afford to make their mortgage payment. They hope to sell their home and move into a more affordable apartment.

Sheldon and Shelly want to preserve their credit score so that they can buy another home when Sheldon finds another job. Trouble is, they are running out of time. If they try to make their mortgage payments, they will eat away at their savings, savings they desperately need while Sheldon searches for another job. They can make the payments for a month, maybe two, but then they will have to default.

Sheldon and Shelly aren’t alone, and the statistics can attest to this. The Bureau of Labor Statistics reports that the unemployment rate hit 9.8 percent in November. And according to RealtyTrac, 1 in every 389 houses received a foreclosure filing in October.  

Sheldon and Shelly are like a lot of people: jobless and on the brink of foreclosure.

Enter Bob and Bella, a couple with a baby on the way. They desperately want a house of their own with a big yard to raise their family. They both have good jobs, though Bella plans to quit as soon as the baby comes. Unfortunately, they have little money to spare, what with a baby on the way. And because no one ever taught them how to build credit, they have terrible credit scores. 

So how can Bob and Bella possibly buy a house with bad credit and no money down?

Carter Brown told me exactly how this would work using a subject to financing strategy.

Using this strategy for buying a house with bad credit and no money down, Bob and Bella would take over Sheldon and Shelly’s mortgage payments.  The title of the home would now be in Bob and Bella’s name, but the loan would still be in Sheldon and Shelly’s name. This means that Bob and Bella don’t have to qualify for a bank loan, nor do they need a big chunk of money to put down.

Hold on, you might be thinking. Why in the world would Sheldon and Shelly do this?

I asked Carter Brown this exact question.

“What else are they going to do?” asked Brown, speaking at the Credit and Debt Summit, a free webinar where the nation’s top credit and debt experts convene to provide new strategies for paying down debt, building credit, and using outside-the-box strategies for reaching financial goals.

If the homeowner is heading for foreclosure anyway, subject to financing is the better option because it preserves a person’s credit score. Brown explained that the sellers—Sheldon and Shelly—could always write a clause into the contract dictating that the title to the home immediately be transferred back to them should Belle and Bob miss a payment.

If this happened, Sheldon and Shelly would be no worse off than they were before. In fact, it might have bought them enough time to get back on their feet.

And Bob and Bella would have the opportunity to a house with bad credit and no money down. A win-win for everyone involved!

Philip Tirone, an expert in residential financing and credit score, is the author of 7 Steps to a 720 Credit Score and the creator of the Credit and Debt Summit, where registrants can learn about new strategies for reaching their financial goals, like buying a house with bad credit and no money down. To learn more about this strategy, read the transcripts from Carter Brown’s webinar by registering for the Credit and Debt Summit.


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