How To Get A Home Loan When You Have Bad Credit
Bad credit is something that affects many people and it may be as a result of different circumstances that disrupt a borrower's intentions. Having bad credit wreaks havoc for potential homebuyers who are often unable to get the financing they need to buy a home. Issues like divorce, job loss, medical emergency and poor credit management are major causes of bad credit. Many home loan applicants become discouraged when bad credit prevents them from achieving their home ownership dreams.
Fortunately, there are avenues that can help people with bad credit to get home loans. Through creative financing and by approaching non-traditional lenders, you can get the loan that you need even with your bad credit. There are private lenders who specialize in financing borrowers who have less than great credit. Many people who have had difficulty obtaining mortgages from banks can obtain a home loan. The following tips will help you when you decide to get financing.
Improving your credit
It is a good idea to start making improvements to your credit as soon as possible. The best way to do this is by changing your spending habits. If you have a long credit history that shows serious delinquency, you can change some habits that could help to improve your credit score. Start making regular payments and reduce your revolving credit to lower than 30% of the credit limits. Pay all your creditors promptly and avoid applying for new or more credit. These steps can start to improve your credit score.
The down payment
Start saving money for the down payment on your home purchase. Your bad credit will reduce your chances of benefiting from loan programs that offer high LVT (loan-to-value) financing. This means that you will need a larger down payment to get the loan. Lenders will want to reduce their risk in case of a default and they ensure that the borrowers have more vested interest in the deal. In most cases, lenders ask for a down payment of between 30 to 40 percent of the total purchase price.
Consider a lease option
You can use a lease option to improve your chances to obtain a home loan. Acquiring a 'lease with an option to purchase' contract is similar to the popular 'rent-to-own' program. You can ask the seller for a 24-month lease option that will allow you to pay the rent while exercising the option to buy the home. After you have paid the rent in full and on time for one year or longer, you can approach the lender for a home loan. Many lenders allow usage of the property's appraised value with a lease option agreement.
Mortgage lenders often request evidence of responsible housing payments and displaying a 2-year housing payment history can help. Showing a payment history that does not have any late payments during the two years can help. You can also consider getting a co-applicant to strengthen your loan application. If you can get a close friend or family member with good credit to help you, you can improve your chances of qualifying for a home loan.
Fortunately, there are avenues that can help people with bad credit to get home loans. Through creative financing and by approaching non-traditional lenders, you can get the loan that you need even with your bad credit. There are private lenders who specialize in financing borrowers who have less than great credit. Many people who have had difficulty obtaining mortgages from banks can obtain a home loan. The following tips will help you when you decide to get financing.
Improving your credit
It is a good idea to start making improvements to your credit as soon as possible. The best way to do this is by changing your spending habits. If you have a long credit history that shows serious delinquency, you can change some habits that could help to improve your credit score. Start making regular payments and reduce your revolving credit to lower than 30% of the credit limits. Pay all your creditors promptly and avoid applying for new or more credit. These steps can start to improve your credit score.
The down payment
Start saving money for the down payment on your home purchase. Your bad credit will reduce your chances of benefiting from loan programs that offer high LVT (loan-to-value) financing. This means that you will need a larger down payment to get the loan. Lenders will want to reduce their risk in case of a default and they ensure that the borrowers have more vested interest in the deal. In most cases, lenders ask for a down payment of between 30 to 40 percent of the total purchase price.
Consider a lease option
You can use a lease option to improve your chances to obtain a home loan. Acquiring a 'lease with an option to purchase' contract is similar to the popular 'rent-to-own' program. You can ask the seller for a 24-month lease option that will allow you to pay the rent while exercising the option to buy the home. After you have paid the rent in full and on time for one year or longer, you can approach the lender for a home loan. Many lenders allow usage of the property's appraised value with a lease option agreement.
Mortgage lenders often request evidence of responsible housing payments and displaying a 2-year housing payment history can help. Showing a payment history that does not have any late payments during the two years can help. You can also consider getting a co-applicant to strengthen your loan application. If you can get a close friend or family member with good credit to help you, you can improve your chances of qualifying for a home loan.
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