If you can afford to pay for a home but your credit score prohibits you from realizing that dream, consider looking for a seller that offers owner financing. Also called seller financing, this purchasing method means the current owner of the home gives you a loan to purchase the house and you must pay them back with interest. This is like a traditional loan where you sign a contract, make regular payments and pay interest, but instead of paying a bank, you pay the seller.

There may be less room to negotiate overall, as they seller will be less likely to budge on the price tag of the home since they are guaranteeing you will be given the loan. The owner may also require a down payment; not all will, but that may be a term you can negotiate. The most important aspect of this arrangement is to make your payments on time every time – an individual seller may have less patience for late or skipped payments, as unlike a bank, that is more likely to directly impact the seller's financial status.

The downside to paying back the seller instead of the bank is the seller may not report your timely payments to the credit bureaus, which means the loan may not help improve your credit score like regular payments of a traditional loan will. You may be able to negotiate that the seller report your payment history to the credit bureaus. However, if you do not need to fix your credit or are willing to do so another way, this may not be a concern.

Other aspects of owner financing can also be more flexible than a traditional loan, such as payment schedule, closing costs and overall lower transaction costs. However, the terms of the owner financing may be more favorable to you than a traditional bank or mortgage specialist loan. Compare the rates offered by the owner to those that you have received previously from lending institutions – if the traditional loan offers a better deal, negotiate with the seller or take the traditional loan offer.

When entering into any loan contract with a private person, have a real estate lawyer review the documents to find any potentially problematic areas. You should also use an escrow company to ensure the money is handled carefully and fairly and have an inspector check out the house for any structural or pest issues. You do not want to enter into an agreement just to later find the house is infested with fleas or has some other underlying issue.