How to Get a Mortgage Loan With a Down Payment and Bad Credit

Obtaining a mortgage to buy a home can be a daunting process. If you have bad credit, it can make the process even more difficult, but not impossible. While your credit history and score do play a role in obtaining mortgage financing, it's not the only thing that is taken into consideration when applying for a mortgage. Find out what you need to do to obtain mortgage financing even if you have bad credit.

Difficulty:

Moderately Challenging

Instructions

1. Before you apply for a mortgage, the real estate agent or attorney you're working with on the purchase of the home has to draw up a sales contract, which spells out the terms of the agreement. The better you can make this agreement look to the potential lender, the easier it will be for you to obtain a mortgage. If you know your credit is bad, and it may cause you a problem in obtaining traditional mortgage financing, offer to have the agent include that you'll put a larger down payment than is normally required.

   A bigger down payment puts the lender at less risk because they will have to loan you less money to complete the purchase. Even if a larger down payment is not stated in the contract, some lenders will approve you for a loan on a contingency basis. One of the contingencies for approval may be that you put more of a down payment.

2. Obtain private mortgage financing. If traditional mortgage financing is out of the question, or you get denied by a bank or lender, see if the buyer will hold a private mortgage for the purchase of the property. A private mortgage works the same as a traditional mortgage, except the seller of the home becomes the bank or lender and they hold the mortgage on the property. Have an agreement drawn up between you and the seller that spells out the balance of the mortgage, the interest rate and the term of the mortgage. You can offer to make a big down payment, which puts the seller at less risk for holding the remaining balance. Instead of making the monthly mortgage payment to a bank or lender, you'll make it to the seller until the loan is paid off or you can refinance at a later date into a traditional mortgage.

3. Approach a bank or lender with which you have a relationship. Even with bad credit, if you apply for a loan with a lender or bank with which you have a good credit and payment history, you're more likely to get approved even if you have bad credit. A good history with them helps reassure them that you'll continue to be in good standing. They too may require a bigger down payment so they take on less of a risk by funding the mortgage for you, but leveraging an existing relationship may be key to landing more traditional mortgage financing.

References

• Private Mortgages