More and more people are learning that they can overcome poor credit as a barrier to buying a home. In fact, the 1998 Fannie Mae Annual Housing Survey of consumer attitudes towards homeownership revealed that fewer people saw credit problems as an obstacle to owning a home than ever before. The percentage of persons who saw their credit problems as a barrier fell from 38% in 1996 to only 16% in 1998.

One of the popular myths is that only poor people have bad credit. The reality is that many homes well above the median price are sold to buyers with tarnished credit histories. You shouldn't hesitate to talk to your real estate professional about your credit situation. They are in the business of counseling people on how to buy homes and should be able to find an effective solution for a problem credit situation.

One of the first things your real estate professional will advise you to do is order copies of your credit report. The major credit reporting agencies are Experian (800/392-1122), Trans Union (800/916-8800), and Equifax (800/685-1111). Experian provides one report per year free to consumers while the others may charge a nominal fee. After you have received your reports, you should take steps to correct any problems you discover. Be prepared to fully disclose and explain these problems to your lender on the initial loan application. Depending on circumstances, your real estate professional may advise you to establish six months of clean credit before applying for a loan.

Even with a problem report, you may find that a real estate professional can direct you to buyers who are not concerned by your credit history. For example, your real estate professional may be able to find a home with an assumable mortgage already in place. Some sellers may even be willing to finance all or a portion of your purchase of the home. Buying a home despite a poor credit history doesn't come without some costs. These "eager" sellers will typically have reasons for their eagerness -- a difficult to sell property, an above market asking price or a need to close quickly.

Another approach to buying a home despite poor credit is a lease with an option to buy. Under these arrangements you can negotiate to apply all or a portion of your lease payments to the down payment or purchase price of the home.

When you have a tarnished credit record, it is important to be open with your real estate professional so that they may best help you obtain the home you want. No doubt, credit problems will make it more difficult to qualify for a home loan. If you have a history of late payments, delinquent taxes or even a court judgment filed against you, you may need to consider what is commonly referred to as a sub-prime loan. These loans are rated B-, C, or D and come with higher interest rates. Today's sub-prime rates are often as much as three or four points higher than those for a standard loan. While your payments will be high, it is a way to get your foot in the door and refinance at a later date after you have established a better credit rating.

If you are able to make a down payment of 20% or more, you may be able to obtain a non-qualifying mortgage. Millions of homebuyers have used this option to obtain loans where credit is not an important factor.