How to Obtain a Mortgage Loan With Bad Credit

Home loans are still possible even if you have bad credit.

Home loans are still possible even if you have bad credit.

Believe it or not, a home buyer with bad credit may still be able to qualify for a loan but they can expect to pay more for it. Blame it on the subprime meltdown but stricter lending qualifications make home loans tougher to obtain. But it’s not impossible. Your dream home may still be in reach if you can build a solid case that you’re financially secure and able to handle the mortgage. After all, banks still want to make money.

Check your credit. Obtain a credit report from each of the three major credit bureaus and review them for errors. You might not be able to determine your FICO score but you’ll have a good idea of what lenders will see.

Resolve issues on your report. Despite having bad credit, cleaning up on your report is still a good idea. Make sure that all the debts listed are yours. If there’s any debt that you can clear out easily, do so to lighten the debt load you’re carrying. Be sure to receive letters from your creditors stating that payment was “Paid in full.” Make sure you also keep up with monthly payments.

Check your income. Gather all your W-2’s and bank and investment statements to prove your worthy of the loan. If you’re self-employed, bring invoices, copies of income checks received and any other documentation that proves you make the income you say you’re making.

Contact lenders and be prepared to explain the reason for late or missed payments. Many lenders won’t easily lend to borrowers who have a credit score below 620, but if you can provide a substantial down payment and can prove that late and missed payments are a thing of the past, you may be able to make your case and have a chance at swaying the loan gods in your favor.

Consider researching alternate funding in the form of hard money and private investors. Approach these types of lenders cautiously and know that their interest rates will be considerably higher than loans provided by traditional lenders. The benefit: these lenders offer loans to high risk borrowers giving you time to decrease your debt, increase your credit score and eventually qualify for a cheaper loan.

Items you will need

  • Cash down payment

Tips

  • Banks may be more willing to work with you if put more money into your cash down payment.
  • Think of high interest rate loans as a bridge rather than a long term plan. Keep working on improving your credit history and reducing your debt and plan on refinancing as soon as possible.

Warnings

  • Even though you obtain the loan, expect to pay high interest rates.
  • Hard money lenders also started using credit scores to determine financial risk in their lending practices.
 

About the Author

Based in Honolulu, Hawaii, Coreen Nishijo has been freelance writing since 2007. She holds a B.S. degree in chemistry from the University of Hawaii at Manoa and is also a licensed Realtor Associate.

Photo Credits

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