With Bad Credit It Is Still Possible to Apply for a Home Loan

April 18, 2012 by  Filed under: Loans 

If you have poor credit, you may think that it will be impossible for you to get a mortgage to buy a home. Not true. Although a bad credit history will definitely make finding a lender more difficult, there are opportunities for even people with financial problems to buy their own home. The following suggestions will not guarantee that you will be able to find a mortgage lender, but the advice below will help increase your chances of success:

1. Improve your credit first.

If your current credit score is poor, consider waiting to buy a home and work on improving your financial situation first. Banks and other lenders are much less likely to approve a home loan for someone who does not have a demonstrated record of paying their bills on time. You may want to work with a credit counselor to put together a plan to improve your finances before looking for a home; you will find greater options for borrowing and lower interest rates if your credit is better.

2. Make the biggest down payment possible.

In some cases, you may currently be paying all your bills on time and working to erase your debt, but previous bad credit is preventing you from having success with traditional lenders. In such a case, you may still be able to get a good rate if you are able to make a down payment of at least 20 percent. A large down payment makes your application more attractive and also eliminates the need to get mortgage insurance, which protects the lender if you happen to default. Of course, if you are still behind on a lot of your bills, you should consider paying them off first and not putting the money into a large down payment.

3. Talk to smaller lenders.

In some cases, a smaller or local home loan broker may be willing to look past your credit score and consider your current and future ability to pay. If your credit score is mostly a reflection of past financial mistakes and you are presently employed and working to pay down your debt, you might be able to convince a lender that you are a decent risk. You will likely still have to pay a higher rate than someone with good credit, but as your credit continues to improve, you can refinance to a lower rate. Be careful to find a reputable broker, preferably one who has been working for many years and has experience working with riskier home loans.

4. Look for a non-conforming loan.

Even if your credit is still poor, there are opportunities to obtain a housing loan, albeit at a much higher rate of interest. Look for a reputable provider of a non-conforming loan product. Such a loan will be expensive because the lender is concerned about the risk of default, but it allows people with less than good credit to get the money to buy a home and work toward improving their credit score. If you do get a non-conforming loan, as soon as your credit situation improves you can look for a more traditional mortgage and refinance for a better rate.

Tomorrow Finance provides tools to compare home loans from Australia’s lenders. When you find the best home loan rates, you save!

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