Purchasing a home is always a stressful process and if you are a first-time home buyer with credit problems, obtaining a home loan can prove even more difficult. Even so, many lenders are prepared to offer mortgages to first time buyers with poor credit. In fact, acquiring a mortgage and making your payment each month can help fix your low credit score. But before you can boost your credit score, it's best to familiarize yourself with the home loan process.
Things You'll Need
- Tax returns
- Bank statements
- Down payment
Put yourself in a position to afford a home loan. Steady employment and income helps you obtain a home loan with poor credit. File your tax returns and bank statements and document your other sources of income. You need to show potential lenders that you can afford a first-time home loan.
Familiarize yourself with mortgage fees. Buying a home involves out-of-pocket expenses. Save money for your home appraisal, application fee, home inspection and settlement fees, which typically amount to 6 percent of the sale price. Talk with your lender to see if they are willing to wrap the settlement fees into your home loan.
Aim to make a down payment. Down payments can sway a lender's decision in your favor when they are deciding whether to approve your application. Down payment requirements vary among lenders, so speak with multiple lenders to inquire about loan requirements. Once you have an amount in mind, begin saving your extra income and cut extra spending.
Research Federal Housing Administration home loans. FHA mortgages are easier to obtain with bad credit and they require small down payments, usually just 3 to 5 percent of the purchase price. Make an appointment to speak with a loan officer and discuss whether you are eligible for this type of home loan.
Compare loan offers. Expect to pay a higher mortgage rate with poor credit, but you can still compare terms to obtain the lowest rate possible. Ask a mortgage broker to research lenders on your behalf, or request information from three or four individual mortgage companies on your own.
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