Owning a home is part of the American dream. It’s also the biggest
purchase that most of us will ever make, and because of that, almost
everyone will be borrowing money to do it. Unfortunately, for many
people that means a bad credit home loan, and that might be hard to get.
It’s simple. Imagine going to a bank and asking for $200,000. And then
imagine that you have bad credit. You’re always behind on your bills,
your credit cards are stretched to the limit – or you have no credit
cards – and you have no collateral. Now try and imagine what the bank
will say.
Having a home is a big part of the American dream, but having bad
credit is a big part of the American reality. There are a lot of people
with bad credit who want to buy homes, but how can they convince a bank
or other lender to give them money if it’s clear they’ve never been
able to pay their bills on time?
The first thing to do if you’re contemplating buying a home and you
have bad credit is to try and establish good credit. Make sure you pay
your bills promptly. If you don’t have a major credit card, get one,
use it and pay the bills promptly. You’re trying to convince a lender
that you can be trusted to pay back money you’ve borrowed. Next, you
want to carefully check your credit score.
Your credit score is a history of all of your financial activity as it
pertains to credit; in other words, how much and how often you have
borrowed and how promptly you’ve paid it back. Credit scores are
generated by three companies:Experian; Equifax and TransUnion, and
you’re allowed one free credit report a year from each of these
companies. If you’re thinking of borrowing for a house, check your
credit report; it’s entirely possible that there are mistakes that
could lower your score.
Now assume that you’re on your way to establishing credit (but you’re
not quite there yet) and your credit report is accurate. The next step
is to find someone who is willing to lend you money, and that is
probably the easiest step of all. With so many Americans have bad
credit, mortgage companies have responded by loosening restrictions on
loans and almost all of them have special bad credit programs. Of
course, these people aren’t giving the money away. You’ll still have to
go through the application process and there are some criteria –
loan-to-value ratio, debt-to-income ratio, and monthly income – that
they will use to determine whether or not you are a good risk. However,
don’t forget that if you have bad credit and a mortgage company is
willing to talk to you, they want your business, so don’t be afraid to
negotiate.
But what if the private mortgage companies and the banks turn you down?
Are you out of options? Not at all. There are a lot of different ways
you can get money for a house if you have bad credit. A good place to
check is the Federal Housing Authority (FHA.) FHA loans have very
generous conditions (the down payment can be as low as 3% or less),
they are willing to help people with bad credit and they have various
programs that offer excellent deals to professional people – police
officers, teachers – to encourage them to become homeowners in the
community where they work. Another good choice is Fannie Mae. This
private company can make home loans easily available – even if you have
bad credit – through their Expanded Approval Program.
Getting a bad credit home loan can take extra time, but it’s worth the
effort. Interest rates are low and there are a lot of options. Don’t
delay your dream.
