If you’re a first time home buyer with bad credit, it may be awhile before you are able to purchase a home if you have to depend on a home loan or mortgage to make the purchase. Why? Lenders have become very skittish about making loans to borrowers without perfect credit. For most conventional loans these days, lenders are requiring a credit score of 720 or higher and a down payment of at least 5%. Does this mean you can’t get a home loan? Not necessarily.

There is one exception – an FHA guaranteed loan. The Federal Housing Administration (FHA) is a branch of the U. S. Department of Housing and Urban Development (HUD) that provides mortgage insurance on loans made by FHA-approved lenders. Contrary to public belief, the FHA does not make loans. It only insures a mortgage against default by a homeowner.

An FHA-insured mortgage is the most lenient of all home loans, and yet they, too, have tightened restrictions on who can qualify for their loans. The FHA establishes basic guidelines for their approved lenders to follow. Lenders, however, can also add other restrictions to those basic guidelines. Thus, you might apply for an FHA home loan with one lender and be denied a loan, yet apply with another FHA lender and be approved. You will have to shop for an FHA mortgage just like you shop for a car or insurance.

Another option may be a “rent-to-own” purchase. This type of purchase plan has proliferated since the housing bust. Typically, a home buyer agrees to rent a home for a specified period of time, usually 3 years or less, and agrees to purchase the home at the end of the rental term for an agreed upon price. Many sellers, however, will still be concerned about a buyer’s credit rating. You will have to find a seller that will accept you with your bad credit on little more than faith.

In some cases, the buyer pays an up-front fee of 1% – 5% or the agreed-upon purchase price which is then credited to the buyer at the time of purchase. In addition, the agreement may call for a premium on the rent. This additional amount paid in rent also goes toward the purchase price at the time of purchase.

The “rent-to-own” purchase is a good way for credit-challenged buyers to repair their credit in order to qualify for the mortgage that they need as well as to accumulate savings that can be used for the home purchase. This type of home purchase is not without its draw-backs, however. If the purchase is not completed, the buyer will probably lose the up-front fee as well as the rent premium that has been paid.

Still another option similar to the “rent-to-own” purchase is the land sales contract, except that there is no rental period and the seller becomes the banker. This type of purchase usually requires that the seller own the home free and clear. The drawback to this type of purchase is that a seller will usually want a sizeable down payment of 10% or more which could deter many first time home buyers. In fact, the larger the down payment, the less the seller will be concerned with bad credit.

First time home buyer loans with bad credit are not as plentiful as they were, but there are still ways to purchase a home if you have both the will and the patience.