“Credit challenged” home loan programs

The tax lien finally gets removed from your credit report.

The bankruptcy is behind you, and you’re moving forward with your life.

One day you have a thought: Maybe it’s time for your family to move out of your brother’s basement.

Regardless of your past credit history, including the presence of tax liens, charge offs, late pays, even bankruptcy and foreclosure, it may still be possible for you to purchase a home sooner that you might otherwise think.

I’ve recently become very interested in this topic because of my own homebuying process. Back in 2008, I had ridden the real estate market to the bottom, and ended up filing bankruptcy. In and of itself, filing bankruptcy was the second best financial decision I’ve ever made, but of course it destroys your credit score.

In the wake of the burst of the housing bubble, some government backed loan programs were changed, and some new ones were created. This was largely done in order to dispose of the sudden inventory of foreclosed homes that came into possession of banks and the government.

These loan programs have their various pros and cons. The biggest thing to keep in mind is that you have shouldn’t take a bad mortgage loan product simply for the sake of getting into a house. Make sure that the loan program terms and conditions will help you meet your personal finance goals, rather than work against you.

I ended up using my VA loan guarantee, rather than one of the much newer programs. The reason for this was to preserve my cash stockpile, but I definitely considered other loan programs for the “credit challenged”. I spent quite a bit of time educating myself (much to the chagrin of my mortgage broker, I’m sure), and determined that, despite a slightly higher loan cost, my VA benefits provided other benefits over some other, cheaper government backed loan products for those of us with credit challenges.

The bottom line: Make sure you understand your loan program, and make sure it fits into the bigger financial picture of your life (to include your taxes, of course!).