Buying a Foreclosure Home With Bad Credit

Reader Question: I want to buy a foreclosure home but I have poor credit. What can I do?

If you plan to buy a foreclosure home at a real estate auction, which is one of the most common ways to purchase these homes, you would have to pay cash for the home. It's just like any other type of auction in that way -- you're expected to pay for the item (in this case a house) immediately following a successful bid.

So in that scenario, your credit score wouldn't matter because you'd be paying cash for the foreclosure property.

Of course, if you don't have that kind of investment cash to put down on a foreclosed home, it's another story entirely. In this scenario, your credit score would be a factor because you would have to get a mortgage loan.

When homeowners default on their mortgages, the property will generally be sold in one of two ways. It might be sold before the foreclosure process through a real estate short sale. Or it might be sold after foreclosure through the auction scenario I mentioned above. If it is sold through a short sale, you could theoretically get a mortgage loan to buy it. But if it's sold after the foreclosure at an auction, you will need to have cash available to buy it after bidding.

So if you don't have the cash to buy a property at a real estate auction, and your credit problems make it hard to get a loan to buy it in the pre-foreclosure stage ... you might not be able to proceed with your plan. If that's the case, the best you can do is to focus on fixing your bad credit situation first.

We just published a new video on this subject earlier today. You can check it out below.