Mortgage loans at one time were relatively easy to get and lenders were pretty lax in their requirements for approving a mortgage loan. However, while the past policies did grant many buyers the America Dream of owning a home, it eventually backfired and caused a financial crisis in the mortgage industry. Now lenders are taking loan application approvals much more seriously and have stringent requirements for mortgage loan eligibility.
Is Bad Credit a Deal Breaker?
When you apply for a loan, you should already know where you stand credit-wise. If you have excellent credit scores ranging above 700, you are more likely to have the most options when it comes to finding a loan and a great interest rate. Lenders want to find applicants who show responsibility when it comes to managing their money and their financial obligations.
When you have bad credit, it is not necessarily a deal breaker but it will be much harder to find a lender willing to lend you money with good terms. There are lenders who advertise loans to people with bad credit but buyers need to be cautious about the fine print and conditions of the loan. There have been many consumer reports about mortgage industry scams targeting people with credit issues.
How to Get A Mortgage Loan With Bad Credit
There are mortgage loans available for people with less-than-perfect credit but buyers will certainly pay the price to get them. Loans will likely carry higher interest rates and involves much higher costs associated with closing. Additionally, some lenders may even require more than a 20% down payment based on the home price prior to closing on the loan.
If you have bad credit and can not afford the higher loan expenses, it is advisable that you wait on applying for a mortgage loan until you have had time to improve your credit rating. All consumers with a credit history can negotiate with their creditors to settle debts and if you continue to pay current bills on time, you will see your credit score increase.
You also should start saving money now for a down payment. The more money you can put down on your home, the more responsible a lender will perceive you to be. With improved credit and money down, a lender may be more likely to work with you.
For those in need of a mortgage loan who do not have the time to wait for credit scores to rise, there are loans and financial assistance programs through the government which can help get a first-time buyer into their own home without a large down payment or a high credit score. Borrowers will still need to have fair credit scores and show no delinquencies on their credit history for a period typically 12 months or more.
Patience is a Virtue
You may want to research bad credit lenders but ideally it is in your best interest to wait until your options improve when your credit improves. Research lenders who are willing to work with your finances and ensure there are no hidden fees and costs associated with a bad credit loan. You also should not apply for a mortgage loan with several lenders because others have denied your application. Doing so will only lower your credit score even more.
If you want to own a home, start with budgeting your cash and saving for a down payment. Homeownership is an expensive proposition and the mortgage process is lengthy. Make a commitment to getting into a home and set up a plan to make that dream come true for you and your family. It takes time but will be worth the effort.
