Home ownership is one of the best ways to accrue wealth. Many people feel a sense of pride when they own their own home or business. Also, it can be difficult to find a place to rent when you have a felony on your record. It may be less stressful to just own your own home.
If you plan to stay in the same location for at least five years, it may be a good financial decision buy a house. If you don’t plan to stay in one place for five years, it’s not advisable to buy a home because it’s so expensive.
Can a person with a felony conviction buy property?
Yes. There are no state or federal laws against a person with a felony record buying property. The only problem may be that the nature of your felony doesn’t allow you to be in a certain location. For example, people with a sex offender label may not be able purchase a specific property because of location restrictions. The other hitch may be getting a conventional loan from a private mortgage lender.
Will you need a Loan?
Almost everyone who buys a house needs to take out a loan. So, you need to find a lender that is willing to give you a loan. There are three types of loans: USDA loans, FHA loans, and private mortgage lenders.
A private mortgage lender is legally allowed to deny a loan based on a felony conviction. The majority of private lenders will run a background check. Private lenders will also want to know the reason for any employment gaps.
Your credit score also will be a factor in a private loan. However, not all mortgage lenders run background checks. You may be able to determine ahead of time if a specific mortgage lender runs background checks or not. Also, if you have a good credit score and a solid employment history, the mortgage lender may disregard a criminal history. Their main concern is that you can make your payments on time and in full. The other two options for a loan – USDA loans and FHA loans – do not discriminate against people with a felony record.
Information about background checks
It’s illegal for an employer to run a background check on you without your permission. If someone runs a background check without asking first, they are not in compliance with the Equal Employment Opportunity Commission ( EEOC.)
You may be asked to pay for your background check. It’s recommend that you run a background check on yourself. Sometimes there are errors that should be fixed.
It is legal to discriminate against you due to your felony conviction. It is not legal to discriminate because of gender, race, age ( over 40), disability, gender identity, sexual identity, pregnancy, color, religion and genetic information. Private mortgage lenders can deny you a loan because you have a felony conviction. They need to be fair. For example, they can’t deny a loan to a woman with a felony but give a man with a felony record a loan.
Some states have laws that only allow background checks to go back seven years. These states are California, Colorado, New York, Kansas, Montana, Maryland, Massachusetts, Nevada, New Hampshire, Texas, and Washington.
In any of the other states, your felony conviction will show up on a background check. However, the mortgage lender asking for the background check decides how many years back to check. You can try to find out ahead of time how far back your particular mortgage lender’s background check will go. Possibly you won’t have to reveal your felony. As long as you are honest on any sort of application, you don’t have to tell.
The official advice is to be completely honest when filling out an application. Disclosing a felony ahead of time can be a good idea, as it shows honesty. However, if your felony conviction was long ago and you are certain that the background check will not go back that far in time, you may choose to stay quiet.
USDA loans and FHA loans:
USDA loans are for people with a low-moderate income. The loans are for specific houses in specific locations. Historically, USDA houses were in rural areas, but now they can be anywhere. The USDA loan will run a background check, but will not be looking at criminal history. The USDA is more interested in your credit history.
A FHA loan is also for those with a low-moderate income, FHA loans can be especially helpful for people with low credit scores. The loan is not associated with a particular house. It’s a loan similar to one you would get from a private lender, but is backed by the FHA ( Federal Housing Administration.) Once again, they may run a background check, but the FHA’s interest is your credit score and employment history.
Steps to property ownership
First, decide if buying a house is a good idea. You should plan to live in the house a minimum of five years. In general, you need to be in a stable financial position to be a homeowner. You need a consistent income to make mortgage payments. Sometimes, you will need a down payment.
If you are trying for a USDA loan or a FHA loan, you will follow their process.
If you are trying for a conventional loan, there are some steps you need to take. A good way to get started is to find out your credit score. If your score is low, consider waiting until you have built up your credit score. You will need pre-approval for a mortgage. Many people try to work with several mortgage lenders. You can see who will give you the best deal. Pre-approval is not approval. Pre-approval will give you a good idea of how much money you can spend on a house.
Don’t lie on mortgage application. It could lead to another felony charge. You will need an assortment of proof about your finances. Some examples of documents are W-2 forms, pay stubs, list of assets, and any documentation of any current debt. The mortgage lender should give you some indication as to whether you will be approved.
At this point, you can start looking for a house. You will have an idea of what a lender may loan you based on your pre-approval information. Go back to the mortgage lender when you find a house. Now that you have more specific information, they will decide to approve the loan or not.
You may need a down payment. There are re-entry programs in the U.S. that might help with a down payment. Check your state. Also, the United States government offers grants.
What’s the best order to do this?
You can decide to go for a USDA or a FHA loan if you are worried about your felony. Also, if your current income, job stability, or credit score are a problem, a USDA or FHA loan may a good idea. You can apply for both loans or make a decision to go with one or the other.
If you decide to go with a conventional loan, you may behave differently based on your state’s background check rules. If you live in one of the states where background checks have a limit and your felony was before the limit, then you can proceed like any person buying a house. If you live in a state without background check limits, you should try to find a mortgage lender willing to give you a conventional loan. It doesn’t make sense to look for a house, save for a down payment, etc. if you can’t find someone to give you a loan.
There is one way to to buy a house without first getting a loan. It’s called Rent-to-Own. You start out by renting a house. The rent you pay is used to make a down payment. You need to find a private seller who would work out a rent-to-own deal with you. Rent-to-own has it’s own complications, but it may work for your situation. Private sellers are allowed to rent or sell to anyone they choose.
In summary:
Most of the time, a felony conviction on your record will not affect your ability to buy a house. Your financial situation, credit score, and current job stability are more important factors.
