How to Get a Home Mortgage Loan With Bad Credit
You don't have to avoid buying a home just because you have bad credit. Some mortgage lenders approve loans for people with bad credit. Just be careful not to fall victim to predatory home mortgage lenders. Since renting often costs just as much or more than buying a home, investing in a home makes sense -- even for those with bad credit.
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Instructions
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Create a budget to determine how much you can afford to pay on your monthly mortgage. Ideally, your mortgage payment should be no more than 29 percent of your total monthly income. When calculating your payment, include amounts held in escrow to cover taxes and insurance. Your home mortgage lender may be able to calculate this for you. If not, get estimates on your local taxes from your municipal and state government agencies. Also get an estimate from an insurance company for hazard insurance. Use an escrow calculator to figure the total mortgage payment.
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Reduce your expenses and increase your income as much as possible. A lower debt-to-income ratio increases your chances of being approved for a home mortgage loan, so start paying off your other debts. Also, start saving towards a downpayment and closing costs for your home mortgage loan.
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Get a secured credit card to start rebuilding your credit rating. This type of credit card is designed for people with bad credit. The deposit account is held as collateral against the amounts charged on the card. Use the card every month and make every payment on time.
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Buy an existing home rather than a new home. Older homes cost less per square foot than new homes, saving you money on both principal and interest on the loan.
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Check the Federal Housing Administration (FHA) and Veterans Administration (VA) websites to see if you are eligible for these types of home mortgage loans. The FHA guarantees mortgage loans for people who otherwise could not qualify for a home mortgage. The VA guarantees home loans for veterans who meet certain eligibility requirements.
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Contact credible lenders, such as ELoan and LendingTree, if you don't qualify for an FHA or VA loan. Comparison sites help you find a mortgage lender willing to work with you. Fill out all the forms truthfully and accurately, stating any previous foreclosures or bankruptcies.
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Tips & Warnings
Improve your bad credit score by removing incorrect information from your credit report. Get a free credit report from the three major credit-reporting bureaus once a year through the AnnualCreditReport website. Dispute in writing any incorrect information with both the reporting bureaus and the creditor that provided the information.
Pay all your bills on time from now on; this also can greatly improve your chances of being approved for a mortgage loan.
If you have the skills to fix up a home, consider purchasing a foreclosed home in need of repair to save even more money.
Watch out for predatory home mortgage lenders that take advantage of people with bad credit. These companies often charge excessive fees and require prepayment penalties, which encourage you to refinance frequently, Don't respond to unsolicited offers, telemarketing calls or advertisements you receive in the mail.
Look up any home mortgage lender you don't recognize by going on the Better Business Bureau (BBB) website before you apply.
Consider only fixed-rate mortgages; adjustable rate mortgages (ARMs) fluctuate dramatically and can further damage your credit rating.
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