Finding a Bad Credit Home Loan

From the Superpages.com

Finding a bad credit home loan can be a challenge, even in easy-credit markets. When there is a credit crunch or tight lending standards, finding a bad credit home loan becomes even more difficult. However, even if you have a less-than-average credit score, or a bankruptcy on your record, you may be able to find a home loan that meets your needs. Follow these tips for finding a bad credit home loan to make the process a bit easier.

Tips for Finding a Bad Credit Home Loan

When looking for a bad credit home loan, make sure to do your research so you can fully understand your options. You should also:

• Review your credit report and consider improving your credit
• Save a significant down payment for your home
• Shop around for lenders and rates
• Consider working with a mortgage broker
• Explore government insured loans

Improving Your Credit

Before you begin the mortgage loan process, take any steps you can to improve your credit. Negatives drop off your credit report in seven to ten years, so if you are close to the end of that time period you may wish to wait to buy.

You should also aggressively pay down debt- your debt-to-credit ratio, or the amount you have borrowed versus the amount of credit available to you, accounts for approximately 30% of your total credit score. By improving this number, you can raise your score significantly.

If possible, you can also ask a friend or relative with good credit to add you as an authorized signer on one of their accounts. They needn't even give you access to the card; the positive account history is displayed on your credit report as soon as your name is added to the account.

Check your credit score by requesting a copy of your credit report from Experian, TransUnion or Equifax. These three major bureaus are the industry leaders and most lenders work with one or more of these companies to evaluate your creditworthiness. Reviewing your score and report can allow you to see if your efforts at improving your credit have been successful and can help you identify errors that might be hurting your credit.

Save a Significant Down Payment

The more money you put down on a home, the lower your loan-to-value ratio (the ratio of how much you borrow versus how much the home is worth). The lower your loan to value ratio, the less risky the loan is for the bank. If you have at least 20 percent to put down on the home, banks may be more willing to work with you and you may be able to find a bad credit home loan more easily.

Shop Around for Lenders and Rates

Check with your local credit union, bank, savings and loan and other local institutions. Review rates available from online lenders. Before selecting a bad credit home loan, you want to make sure you have the best possible rate available for your situation. If you do decide to get quotes from a number of lenders, however, ensure you apply for and get all of your quotes within a one-to-two day period. If you apply for multiple loans in a brief period, they are often grouped together as an inquiry. If you space out your applications, they can each show up as a different inquiry, making your credit score worse.

You may also want to research mortgage companies that do their own underwriting instead of relying on credit scores alone. Mortgage companies that do their own underwriting will do a more thorough review of your history and finances as opposed to simply relying on your three digit FICO score. If your bad credit was the result of medical bills or other one-time unfortunate incidents in your past, a company that does its own underwriting may be more forgiving than the credit bureaus who simply calculate your score using a standard formula.

Consider Working with a Mortgage Broker

A mortgage broker is a mortgage professional who has a relationship with a number of different lenders. A mortgage broker gets paid to help you find a loan, so it is in his best interests to do so. However, be aware that a mortgage broker will charge a commission, and don't assume your mortgage broker is acting selflessly on your behalf; although they want to help you, you still need to do your own research and evaluate the terms of your bad credit home loan to make sure it makes financial sense.

Explore Government Options for a Bad Credit Home Loan

The Department of Housing and Urban Development and the Federal Housing Administration work with lenders to offer secured loans to buyers in special situations. You may be able to qualify for this type of loan more easily than for a conventional loan, even with bad credit. If you are a veteran, are disabled or have other special circumstances, other government agencies may also be able to help. Research these types of loans carefully to find out all of your options for a government backed bad credit home loan before deciding to pay a higher interest rate with a traditional or sub-prime lender.