If you have fallen into a financial rut, digging yourself out can be challenging. Ideally, you should improve your credit score by paying off outstanding debts and establishing new credit accounts. Sounds easy, right? Wrong. The reality is, you may have difficulty getting approved for new credit with a low score. In a shaky economic climate, lenders are becoming more selective about who they work with, especially when it comes to mortgages. Many lenders require a 20 percent down-payment in order to guarantee a mortgage. However, take a second look before assuming home ownership isnt for you. Whether you are simply looking to improve your credit score or rebuild credit altogether, investing in real estate may be a suitable option. Below are a few avenues of financing (depending on your current credit score):

FHA Loans

Secure loans are a safer way to improve credit and establish a solid track record in real estate debt. If you have decent credit, a Federal Housing Administration (FHA) loan could be the best option. Backed by the government, this mortgage loan is a way to purchase a home with a down payment as little as 3.5 percent. Because the government guarantees to pay the balance of your mortgage to the lender if you default, a small Mortgage Insurance Premium (MIP) is applied to your monthly payments. If you are trying to secure a smaller mortgage loan and dont have the up-front cash for a down payment, look for properties that are FHA approved.

Small Personal Loans

Property ownership is not specific to homes; in fact, many real estate investors dont live on their property at all. If you credit is in the lower region, consider a smaller commitment. Apply for a personal loan and purchase a piece of land. If you live in an urban area, consider buying a parking space to rent out. These types of properties require little maintenance and carry the bonus of tax benefits and an easy way to rebuild your credit score.

Rent-to-Own

Poor credit and home ownership are conflicting terms. It is usually very difficult to get a mortgage loan if you need to improve your credit. If you are among this group, you may be able to purchase property with a rent-to-own plan. The rent-to-own option allows a portion of your rent to go toward an impending down payment. For example, if the Smiths pay $1,400 a month in rent, $400 would go toward their down payment. At the end of 12 months, they will have saved $4,800 to apply to their down payment. These programs generally accept applicants with bad credit, even those who have filed for bankruptcy. By biding your time and establishing credibility, you can secure a mortgage loan at a price you can afford while rebuilding your credit simultaneously.

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