A Great Real Estate Directory, includes information, tips, giudes about buying and selling a home. You can find a top local real estate agent, or real estate and properties listings in the World.

Getting Mortgage with Bad Credit in the United States

One of the most major financial transactions in your life will be a home purchase. A home is a major investment. The home mortgage is a major undertaking. Your poor credit can have an impact on the terms of the mortgage but it is possible to buy the home of your dreams with bad credit.

Lenders do exist that want to lend. This is because lenders are out of business if they do not lend. Lending is their business. The only drawback is that those of us with bad credit have to meet additional conditions than do those of us with stellar credit. Despite the need for lenders to lend, it seems illogical that they would accept the additional risk that comes with lending to a person with bad credit. Yet there are ways to prove to lenders that the loan is a sound business decision on their part:

Pull your credit reports from all three bureaus: TransUnion, Experian and Equifax. Look over each report carefully and note any inaccuracies. Dispute any information you think is wrong by filling out a dispute form and sending it to each company. Removing just one or two derogatory accounts could significantly raise your credit score. Submit your disputes at least 30 days before you want to apply for a mortgage.

Visit your local housing agency or HUD office. Ask to speak with a counselor about securing a mortgage with bad credit. There are down-payment assistance programs and mortgage loans for low-income people or those with bad credit. There are also programs that encourage people to buy foreclosures and fix them up to improve the neighborhood.

Discuss with prospective lenders who cater to people with bad credit. Research the company with the Better Business Bureau before giving them any information. Fill out the online application and compare the interest rates from each company and the terms of each one. Most subprime lenders are out of business, but there are still some out there. Be prepared to pay a higher interest rate on these types of loans.

Discuss the possibility of doing a “rent to own” deal with a prospective home seller. Typically, you write a contract with the homeowner specifying a monthly payment with a portion of the payment set aside for the down payment, should you decide to purchase the home later. Improve your credit while you are renting so that you can qualify for a mortgage when the lease is up. The downside is that some people may not qualify for a loan after the rental period.

Purchase a less expensive house or one that needs repairs. People with bad credit may get approved for mortgages far below their desired amount, but having any type of mortgage on your credit report will improve your score, so consider a more modest home and fix it up. Homes that need repairs may qualify for a 203k rehab loan, which is offered through HUD. This type of loan is meant for new homeowners to rehab (fix up) the property in a specified number of days. The purpose of the 203k rehab loan is to revitalize the neighborhood by fixing up abandoned, run-down homes.

Save more cash and put down a higher down payment. FHA loans typically require less than 10 percent down, and conventional loans start at 20 percent down. A higher down payment equals less risk to the lender, since you have already invested a lot of money into the property. Plus, you will not have to pay PMI (Private Mortgage Insurance). PMI is extra insurance required of homeowners who put down less than 20 percent. Its purpose is to protect the lender against loss if the homeowner defaults on the loan. If you accept down payment money from family or friends, be sure to get all parties to sign a “down payment gift letter” that states the money is a gift and not a loan.

Tags: , , ,