Getting a bad credit loan
You want to buy or refinance a home, but your credit took a nose dive after a long period of unemployment, illness or other misfortune. You've checked with your bank, made a few calls, and you can't get your foot in the door. What can you do? There are mortgage loan programs and mortgage lenders that offer bad credit home loans in situations where mainstream lenders would just say "no" to your loan application.
Know What Happened and Why
Before shopping for a mortgage, it's wise to consider the big picture. What caused your financial problems? Did you lose a home to foreclosure? File bankruptcy? Have you solved the underlying issue that caused your credit troubles? In these situations, it can take a year or more to rebuild your credit to a point where you can qualify for a mortgage. Mortgage lenders may work with your past financial hardship, but they also need to verify that you have recovered from the hardship and can afford to make mortgage payments.
Prepare to explain and document what caused your financial problems. Whether it was long-term unemployment, business failure or catastrophic medical bills after losing your health insurance, it's important to provide specific information rather than saying only that you had too many bills.
Bad Credit = Extra Costs
Bad credit mortgages typically cost more than traditional home loans or mortgage refinancing. Mortgage lenders consider you a higher credit risk when you have low credit scores. Lenders compensate for additional risk by charging more for bad credit mortgage loans. You can expect to pay higher mortgage rates, discount points and lender fees.
Bad Credit Mortgage: Now or Later?
After checking your credit scores and requesting a few mortgage quotes, you may wonder if getting a bad credit mortgage is worth the extra expense. In some cases, it may be worthwhile to wait until your credit improves. If you've lost a home to foreclosure or filed bankruptcy, you may have to wait for one to three years after the foreclosure or bankruptcy was completed. This waiting period can be used to pay off debt and save for your down payment and emergency fund.
FHA and VA Loans
Government-backed mortgage programs offer flexible approval guidelines and require lower down payments than conventional mortgage loans. No down payment is required for VA loans. FHA and VA loan programs can provide potential mortgage options for eligible borrowers with credit problems. Ask prospective mortgage lenders about these loan programs in addition to shopping bad credit mortgage loans.
Can't Get a Mortgage? Help Is Available
Are you up to your ears in debt? The U.S. Department of Housing and Urban Development (HUD) sponsors housing and credit counseling programs throughout the U.S. HUD approved counseling agencies can help you determine if you can qualify for a mortgage and how to fix your finances and increase your credit scores. HUD approved housing counseling and debt management programs are offered at little or no cost, and are a worthwhile resource in advance of shopping for a bad credit mortgage.
Bad Credit Mortgages: Shop Until Your Costs Drop
Request and compare multiple mortgage quotes when you search for a bad credit mortgage. Compare quotes carefully, and question anything, including costs and fees, that you don't understand, You can expect to pay extra for a bad credit mortgage, but lender costs vary. Careful shopping can help you save on loan costs.
A word of caution: Beware of unsolicited offers of credit or mortgage "help." Such solicitations may be scams or require high service fees.
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