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 > How to Get a Home Loan with Bad Credit |
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If
you have a poor credit rating, getting a home loan is not going to be easy.
Depending on your credit situation, it may even be impossible. Predatory
lenders have been offering loans to people with poor credit, but these home
loans are often dangerous financial products because of penalties and fees
they carry. Many homeowners have ended up in foreclosure because of subprime
mortgages. If you suffer from a low credit rating but need a home loan,
there are a few steps you can take to avoid these dangerous loans.
Instructions
Step 1
Check your credit rating before shopping for a home loan. Your credit may
not be as bad as you think. A score under 620 is considered a very bad
credit score. A score above 620 but below 680 is not ideal, but it is not so
low as to keep you from getting a home loan.
Step 2
Take the time to raise your credit score by paying off some credit cards and
making your accounts current. If your credit score is under 620, this is the
only option to help you get an affordable home loan.
Step 3
Create a budget to determine how much you can afford to pay for your monthly
mortgage payment once you have improved your credit rating. If you have
significant amounts of debt, there may not be any extra money to put toward
a home loan.
Step 4
Collect the money for a large down payment. The more money you can put down
on your home, the more favorable your home loan terms will be, in spite of
your low credit score. A large down payment shows the lender that you have
some financial responsibility and lowers your monthly payment amount.
Step 5
Prepare yourself to have a high interest rate on your loan. This is the
penalty for having a low credit rating. You can counter this somewhat with a
larger down payment on your home.
Step 6
Keep careful track of the closing costs, points, penalties and fees on any
loans you are offered. This will protect you from the dangers of the
subprime lending market.
Step 7
Consider having someone co-sign for the loan with you if you have extremely
poor credit. Your spouse or parent, for example, may be willing to sign for
the loan with you, and their good credit score may help partially offset
your score.
Step 8
Avoid the temptation to get an adjustable rate mortgage (ARM). These have
lower monthly payments at the beginning of the loan, but the payment amount
increases when the national mortgage rate increases. This means your
mortgage could end up being much more than you can afford in a few years.
Step 9
Choose a loan with a fixed interest rate that has fair fees and the lowest
interest rate possible for your situation. Keep the information on the other
loans available in case you are denied for your first choice.
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