Getting a home loan with bad credit

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Financing for a home can be grim, especially if you’re a first time home buyer or a consumer with less than satisfactory credit. Banks are stricter than ever as it pertains to deciding if they should grant you a mortgage loan. In general, banks are only looking for “good customers.” These are the customers that have good credit, capital, pay their mortgage on time. They desire a customer they can make money off of by the payment of interest with the least risk. Don’t be weary, there are ways to loosen the grip of some these iron clad banks.

Before you do anything create a budget

This is extremely important because it will help you identify what you can and cannot afford. Most importantly, this step can help establish your needs from your wants when choosing a house.

Know your credit score

It is just as important to know your credit score before you enter a bank and submit an application to obtain financing. This way you can level out conflicts such as having a low credit score by saying something like, “ I’ve created a budget that will help manage my finances and increase my score when I obtain a loan from your bank .”

Submit your application

The most important thing to do when submitting a application is to consider what type of loan you need to obtain, the table below summarizes the benefits and drawbacks of different loans.

Loan Type Benefits Drawbacks
Conventional 30 year mortgage Fixed monthly payments High initial interest rates
Conventional 15-20 year mortgage Lower rates than a 30 year mortgage and faster pay off Higher monthly payments
FHA/VA Fixed rate mortgage Low down payments and low interest rates Lots of processing time and server penalties if you can’t make payments
Adjustable Rate mortgage A variable rate mortgage whose interest rates can decrease, to obtain the full benefits from this type of loan it would be best to get a “rate cap” If you don’t receive a rate cap on these specific type of loans, interest rates can inflate dramatically
Option ARM mortgage Flexibility on what to pay. You can choose to pay interest, principal or both Rate could adjust in an opposing favor
Interest Only mortgage Lower payments for the first few years because you just pay interest Doesn’t decrease the amount of the loan, only decrease the amount of interest you owe

 

This is the most annoying process of getting a home loan. They issuer of the loan will want to know:

  • Place of employment
  • Length of employment
  • Marital status
  • Yearly income
  • Criminal history
  • Dog’s name
  • Cat’s name
  • etc..

It’s a daunting process but it must be done. The most important thing to remember is to have an answer for any possible discrepancies.

Finally after your loan is submitted the loan officer may call you in for a formal interview which could make or break your dreams of owning a house. Be as professional and sound passionate about owning property. Officers love to see well prepared, managed and passionate people owning homes.

Tip: Low income families can get help obtaining a loan from the FHA website.

Helpful links

FHA

Loan Amortization Table

Vet’s For Homes

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