You can still find a mortgage for your home even with bad credit, but you'll need to look at alternative sources of financing.

It is truly disappointing that basic classes in finance and accounting have yet to be added as mandatory coursework for our nation’s high schools or colleges. When it comes to preparing America’s youth for life in the adult world, lessons like managing accounts, balancing budgets, and building credit are paramount for financial success.

And yet, we release youngsters into the world without so much as a single lesson pertaining to saving money, spending wisely, and properly utilizing credit in preparation for the future. The end result, as expected, is a lot of adults trying to dig themselves out of debt and learning the hard way what ruining your credit when you’re young leads to attempting to secure car, business, or home loans with bad credit.

At the best, these individuals can hope for approval from traditional lenders only with the caveat of a sizeable down payment and/or an outrageous interest rate. Most likely, however, they will not be approved at all.

For this reason, it’s important that prospective homeowners coping with poor credit learn about all of their options when it comes to securing the best terms on home loans. Here are a few things you should know if you’re seeking a home loan with bad credit.

Improve Your Credit

This is more easily said than done. You want to buy a house now and start building equity instead of throwing your money away on rent, but poor credit can take years to fix and in the meantime you can’t get a loan.

Here’s the thing about taking on a traditional loan with poor credit. You’re going to pay a lot more for the privilege than someone with a top tier credit rating. In truth, it might not take as long as you imagine to bring up your credit score.

With a targeted effort, and perhaps the help of a financial planner, you could start to see significant improvement to your credit rating in as little as a year. By cutting costs, paying down debt, clearing up black marks on your credit report, and paying bills on time and in full, you could start to see your credit score creeping up to an acceptable level.

Depending on certain circumstances (a successful bankruptcy filing, for example), you may have to live with credit issues for the next several years, despite your best efforts. But if you’re willing to work at it and wait a while to buy a home, you’ll get a much better deal down the line.

You could also look into alternatives like FHA loans and private money loans in California, just for example, if you simply can’t wait. Read on to find out more.

FHA Loans

The Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development (HUD), is tasked with helping low-income individuals and families to purchase their first home. There are, of course, restrictions on who is eligible for such loans, but considering the low down payments, low closing costs, and easy credit qualifying that these loans are known for, they’re worth a look if you’re a first-time home buyer.

To see if you qualify for an FHA loan, you’ll first have to find an FHA lender. By contacting HUD or the FHA, you should be able to find appropriate lenders to contact in your area.

Private Money Loans

If you have trouble gaining approval for both subprime and FHA loans, it’s time to explore alternatives. Private money lenders in California, Florida, or your state of residence may be able to help.

As the name implies, such lenders are private, which is to say they are not associated with a banking institution. Generally speaking, they are more interested in supporting buyers that are investing in real estate rather than those purchasing a primary residence, much like hard money lenders in California and other states.

However, private money loans, by their very nature, could come from a variety of sources. For example, you might be able to borrow money from family members and friends.

These people are interested in helping you get into a home, and they may be willing to put up the money in exchange for repayment with interest. If you move beyond this circle of loved ones, however, you almost have to be investing in real estate so that you can promise bigger returns.

Hard Money Loans

Although hard money loans in California and other states are not aimed at the average would-be homeowner, they are a viable option for investors looking for short-term loans to take advantage of real estate opportunities that will pay off within, say, 1-3 years. If your credit is bad, you’ll have less trouble securing a hard money loan than a traditional loan because you will be required to provide more capital up front.