Homeloans For Bad Credit - How To Obtain One
If you have a bad credit record you are probably thinking that buying your dream home is only that, a dream. But you would be wrong, as you can buy a home with homeloans for bad credit. However, it is important to point out that these type of loans come with a higher price tag.
How hard and how expensive it will be will depend a lot on your personal circumstances and the reasons why you have bad credit in the first place. You may have recently filed for bankruptcy or you have gone through the experience of a foreclosure. You could also have previous loan defaults or missed payments on your credit report that have lowered your credit score.
Playing The Waiting Game
Foreclosures and bankruptcies that appear on your credit file will represent the biggest challenge in you securing a bad credit home loan. A bankruptcy record will remain on file for up to 10 years and cannot be removed until it expires.
If you have recently filed for bankruptcy or have yet to be discharged then, it us highly unlikely that any of the big commercial lenders will offer you any kind of bad credit mortgage refinancing.
All you can really do in this situation is to wait. The earliest that you could apply for loan after filing for bankruptcy would be 6 to 12 months however, the interest rate charges would be very high and you will have to put down a considerable down payment .
However, if you waited for 3 years years you could qualify for a FHA loan.
FHA Home Loans
FHA loans are made available to people on low income to purchase a home that they would not have been able to afford. The loans are backed up by the Federal Housing Association. Due to this backing lenders are more willing to lend people who have poor credit a loan as most risk is undertaken by the Government.
To qualify for an FHA loan you need to wait for 3 years after you have filed for bankruptcy. In the mean time you will have to have maintained a good credit record. This can be done by applying for a new credit card or prepaid card.
When doing this make sure the card is monitored by the credit bureaus because if they are not then your good credit history will not be recorded. With an FHA home loan you could qualify for low rates of interest.
Improving Your Chances In Qualifying For A Bad Credit Home Loan
If you are applying for bad credit mortgage loans after you've been made bankrupt you will find it a challenge to qualify for one however, this is achievable. The first thing that you will need to do is prove to the lender that you have changed your habits in the way you handle your finances.
Bankruptcy can seriously damage your credit score and therefore rebuilding a good credit history is essential and this should start immediately after you have filed your petition. How to improve your credit history does not have to be complicated and you can achieve this by
- Paying your bills on time and never exceeding your credit limit.
- Providing proof of steady employment for 24 months.
- Establishing a regular income either through a job or your own business.
- Budgeting and saving an amount of money each month for your down payment.
Why You Should Check Your Credit Score Before Applying
Your credit score will determine your ability to borrow and the rate of interest you will pay. For these reasons it is important that you check where your score is ranked on the credit score scale. If you have a history of bad credit your score will probably have taken a beating and rank way down the credit scale.
The credit scale is used by the credit reporting bureaus as a measuring tool to determine your credit worth. Your score reflects how you have managed your debt in the past. If you have managed it responsibly you will have a earned a good credit score. In contrast a bad credit score reflects someone who has mismanaged their finances by taking on too much debt and not paying their bills.
Credit scores enable financial lenders to make an informed decision on whether to qualify you for a home equity loan and how much to charge you for it. A bad or low credit score will increase your chances of having your bad credit loan application rejected. If you are successful you will have to pay a higher borrowing costs and the lower your score the higher those interest rates and monthly fees will be.
First up, you need to check your credit score. These are provided by the credit bureaus who will charge you a fee to have access to them. New laws have just recently been passed stating that if your mortgage for bad credit has been turned down then, the lender has to tell you the reason why. At this stage you have also the right to request the credit score that was used in the lenders decision.
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Key Points: Raising Your Credit Score
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Most lenders work of the FICO credit scoring system that has a number scale from 300 and 860. Most lenders consider a good credit score to be above 700. The average credit score for most people is around 680. It is important to point out that having a poor credit rating does not mean that all lenders will reject you.
Focus On What You Can Control To Raise Your Credit Score
All lenders use different lending criteria to determine their own desirable customer. A person who is not approved at one bank could be the perfect customer for another bank as they match their unique criteria. The key thing that you need to focus on is moving up that scale as fast as you can.
There are certain factors that only time can help improve your score. For example, defaults, foreclosures and bankruptcies are going to remain on your credit report for up to 7 and 10 years. There is nothing you can do about these. However, you can focus on changing what you can control. This means start rebuilding your credit as soon as you can.
By building up a good credit history based on paying your bills on time, keeping within your credit limits, maintaining low debt levels and ensuring your credit report is accurate and updated, you will in time see your score improve.
Conclusion
Many people believe that with poor credit they are never going to be able to borrow again. However, the reality is different. There are homeloans for bad credit history available but they do come with more restrictions and higher costs. Lenders will increase the mortgage refinance rates on these loans to offset the risk involved in lending to people who have history of bad credit.
The key thing to focus on if you have a low credit score is to increase it as this will eventually lower the cost of the bad credit refinance deal. If you have filed for bankruptcy then, you should wait for at least a year in order to rebuild your credit and then apply. In this way homeloans for bad credit home buying will become considerably easier and cheaper to find.
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