Home loan for people with bad credit: things to know
At the turn of the last decade, it was fairly easy to get a home loan, even if you had bad credit and no money to put down. Then the housing bubble burst, sending the economy into a tailspin. Lenders are now much more cautious and have raised their borrower qualification benchmarks. Nowadays, you often need a 20-25% down payment to get a lender to take a look at it. But there are home loans for people with bad credit and they are a good option for people with bad credit.
Understanding bad credit
If you have a credit score below 680, you are defined as a bad credit risk. You may not have a problem getting smaller loans, such as for a car or other major purchase, but you may face a battle getting a mortgage in today’s financial environment. You should thoroughly research the home loan market and understand what you may qualify for. Good credit eases the path to homeownership, but credit scores aren’t the final arbiter. Other considerations may come into play and you need to know what to do and what you need to qualify for a bad credit home loan.
Income is very important along with credit
The other important factor beyond your credit score is your monthly income. To offer a home loan to people with bad credit, a lender wants to make sure that you have enough disposable income, after meeting all of your necessary obligations, to cover a monthly mortgage payment. The self-employed will have a tougher hurdle than the salaried. They need to show the profitability of the business. The income must be stable enough and enough to persuade the lender to take a chance on offering the funds for a house. This obstacle can be just as difficult to overcome as bad credit.
find lenders
As noted above, traditional lenders have become much more cautious when approving a home loan today. Of course, this is doubly true if your credit history is less than sterling. Recognizing that there are more people with bad credit today because of the economy, and recognizing that people with bad credit also need housing; many private lenders have stepped in to fill the chamber and you can find many of them on the internet. Many specialize in home loans for people with bad credit, and credit scores may not be the most important thing to them. They can dismiss the mistakes of the past and focus on their bottom line with respect to revenue. Having a substantial down payment is also always a plus.
Credit Score and Income Realities
Your first step when you start shopping for a bad credit home loan is to come up with an accurate estimate. You have to calculate the cost of everything, even Fido’s tricks. Free budget calculators are available online. You need to have enough left over each month to meet a mortgage payment, after you have met all of your regular obligations. You also need to get your credit scores so you know exactly what a lender is looking at when they start their negotiations. Often there are discrepancies that can be corrected and can help improve your scores, sometimes considerably.
If you don’t qualify
Don’t limit your applications to traditional brick-and-mortar financial institutions. Check online. You will find many lenders with many options when it comes to interest rates and repayment terms. Eventually you will find a lender willing to accommodate you. If you still don’t qualify, start a concerted effort to improve your scores. Start getting smaller loans and repaying them as stipulated in the contract. Doing this multiple times will greatly increase your scores and put you in the driver’s seat the next time you apply for a bad credit home loan.
