How To Get A Home Loan With Bad Credit

You need to know how to get a home loan with bad credit for several reason. You missed five car payments over a two-year period after first buying your car. You had to declare bankruptcy six years ago. You've run up your credit card debt. All of this has given you bad credit. Now you want to apply for a mortgage loan. You're worried, though, that you won't be able to convince a mortgage lender or bank to loan you any money because of the poor financial decisions you've made in the past. There is hope, though. If you can prove that your financial mistakes are in the past and that you're now working to rebuild your credit and pay down your revolving debt, you should be able to obtain a mortgage loan. You might have to pay higher interest rates, but at least you'll be able to finance your new home.

1. Make a case that you've become a more responsible borrower. If you've not missed a car payment in the last three years, be sure to tell potential mortgage lenders. If you've cut your credit card debt in half over the last five years, mention this, too. If you've paid all your bills on time and refrained from running up new debt after declaring bankruptcy, pass this information on to mortgage lenders. Lenders and banks do rely on your three-digit credit score to determine who gets mortgage money. If your score is low--under 620--you'll need to explain why it is low and what steps you've taken to boost your score. Not all lenders will care about your improved spending habits, but some may be willing to take a chance that you won't miss payments should they lend you money.
2. Look for an alternative. Traditional mortgage lenders generally won't lend to borrowers with credit scores under 620. However, the United States Department of Housing and Urban Development's Federal Housing Administration (FHA) does insure mortgage loans even for borrowers with credit scores as low as 580. If your score is low, seek out one of these FHA insured loans. As a bonus, you won't have to come up with as large of a down payment. FHA insured loans require down payments of just three and a half percent of a home's purchase price. Most traditional lenders require down payments of five to twenty percent.
3. Be willing to pay higher interest rates. To protect themselves, mortgage lenders and banks charge higher interest rates when giving out mortgage money to borrowers with low credit scores. If you have a low credit score, you might not qualify for the conventional mortgage loans offered by banks or lenders. However, you might qualify for their sub-prime products; loans that come with higher origination fees and interest rates.

Resources:

How Your Credit Score Is Calculated

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