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How can I get a home loan with bad credit?

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I screwed up my credit a few years ago by making some dumb choices. I've managed to get back on track with my finances and am hoping to be able to buy a home in the next year or so. I have a great job and plenty of income, but I'm worried that my credit score will keep me from being able to qualify for a loan. Is it possible to get a home loan with bad credit these days? Also, is there anything I can do to improve my chances of getting approved?
asked Dec 17, 2015 in Finance by danj08
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1 Answer

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Your credit score is just one element that the lenders look at when they evaluate you for a loan.  It is still possible to get a home loan despite your poor credit, but it will be a challenge. If you want to boost your chances of getting approved, consider this:

- Make sure that you can document that you have been paying your bills and rent on time. That shows the lender that you are reliable, and that is favorable.

 

- You will probably have to pay a higher interest rate. So, you will have to see if your finances can afford a higher rate. Once your credit improves to a good level, you can refinance to a lower rate. [1]

 

- Ask your lender about an adjustable rate rather than a standard 30-year mortgage. You might be able to get a good rate from the start while you continue to work on improving your credit. Just keep your eye on how the rate adjusts each period. There will come a point when the rate reaches a high level. Hopefully, by then, your credit would have improved enough for you to refinance to a fixed rate mortgage.

 

- Go for for FHA loans that are backed by the federal government. Lenders tend to relax their credit qualifications a little for these borrowers. [2]

 

- If you have someone with good credit who is willing to co-sign your loan, that would look favorable to the lender. However, your co-signer has to understand his/her liability.

 

- If you have a healthy cash reserve, putting down a bigger down-payment might help. A down-payment that is more than 20% can make you a more favorable borrower.

 

- Try to boost your credit score to at least the mid-600s. Any number below that will make it very difficult for you to get approved.[3]


One final note: beware of unscrupulous lenders who prey on borrowers in your situation. These "loan sharks" will gouge you. Work with a lender with a good reputation. Here a video with more tips:

 


Good luck with it!


[1] http://www.housingwire.com/articles/31227-how-to-get-a-mortgage-right-now-even-with-bad-credit


[2] http://www.bankrate.com/finance/credit/low-credit-score-borrowers-get-mortgage.aspx


[3] http://www.wikihow.com/Qualify-for-a-Mortgage-with-Bad-Credit

answered Dec 19, 2015 by turker88 (23,620 points)

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