Those borrowers with bad credit are often left with little or no choice when it comes to financing a home. First of all, there are many obstacles to overcome in addition to a derogatory credit score, the biggest of which may be coming up with a down payment for your home purchase. Let us take a look at the two routes that you can take to become a homeowner with bad credit.
Option One: Improve Your Credit First
The first option that makes obvious sense for bad credit borrowers is to improve their credit score prior to applying for their home loan. Most mortgage brokers look for credit scores that are 620 or above in order to finance your home in the traditional manner. If you do not know your credit score, it is a good first step to pull your credit report and score from all three major credit reporting bureaus in the United States (Experian, Trans Union, and Equifax), and see how each bureau ranks your score. This gives you the best information to use going forward as you improve your credit.
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After you have seen which items are reported as delinquent or even charged off on your credit report, you should take the most significant items and work towards repayment. Oftentimes, borrowers can negotiate with the creditor holding the bad debt record to repay them over time, and have the notation removed or amended on their credit file. Communication is the key. Only agree to repayment of bad debt that you can truly afford, or you will find yourself in the same position. If you are behind on any of your current financial obligations, you should also work out a payment plan with those creditors as well, before they turn you over to the bureaus.
You should also work on saving towards a down payment. The bigger down payment that you can come up with before you apply for your home loan, the better your chances are of being approved. Although a ten percent down payment is best, some lenders will finance you with only five percent down.
Option Two: Apply For Bad Credit Mortgage
The second option is to apply for a bad credit mortgage. But buyers beware. There are many schemes out there that seemingly finance the home you need, only to find out that you have been given a loan that you cannot afford. Many homeowners have lost thousands of dollars and drove their credit scores even further into the ground with these types of offers. The things to look for are offers that are made specifically for your situation, and that require little or no down payment. These are usually a scam.
A true bad credit mortgage lender will only work with you if you have a down payment of some type and adequate income to make your mortgage payments. Also be aware that you may need to purchase private mortgage insurance if you are a less than worthy borrower. This is insurance that many banks and lending institutions require when dealing with those with bad credit.
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