8 Things to Help You Get a Mortgage Loan with Credit Problems
Have you fallen on hard times with a job loss or reduction in hours? Perhaps you have made some financial mistakes and your credit took a hit. You still may be able to get a bad credit mortgage even with some substantial credit problems. Banks and mortgage companies were forced to adjust their credit standards because of the financial crisis that hammered the U.S. a few years back. Just recently we started to see more aggressive lending emerge with affordable mortgages for people with bad credit, past bankruptcies and even foreclosures.
Read on to learn about your mortgage options if you have credit problems.
#1 Look at FHA Mortgages
While the FHA does not lend money, it offers insurance for lenders by guaranteeing they will pay off your lender if you default on the mortgage. For the lender, this lowers their risk for lending to someone with poor credit. It also greatly improves the chances that your mortgage application will be approved.
Many people with credit problems can be approved for an FHA mortgage loan. Even if you have a bankruptcy or short sale on your credit report, you may be able to be approved after a two-year wait.
#2 Make It Short Term
#3 Get an ARM
The major risk to an ARM is that the interest rate will rise after a few years. However, this is not considered a major problem by many experts if you are intending to keep the loan for a short term. It is very important for you to manage your finances well with an ARM so that you can refinance with a better credit score in a few years.
#4 No Prepayment Penalty
If you are able to pay more per month on your mortgage, please do so.
#5 Increase Your Credit Score
The first step is to order copies of your credit report from TransUnion, Experian and Equifax and look for anything that is inaccurate. You should dispute anything that is not correct and this will help to increase your score quickly.
Also, work on paying down your overall debt and make all of your bill and credit card payments on time each month.
#6 Put More Down
Another benefit of putting down a larger down payment is that you will not need to shell out money each month for private mortgage insurance or PMI. This is a requirement for all homeowners who put down less than 20% of the cost of the loan.
As far as how much to put down, it depends. Some people put down 5%, 10% or even 20%. The minimum for FHA insured loans is currently 3.5%. You can accept down payment help from friends and family but it must be a gift and not a loan. If you suffer from really bad credit, then you may be required to put more down. There are a handful of subprime lenders that offer mortgages for people with bad credit if the borrower can come up with more money down.
#7 Get a Co-Signer
#8 Consider Other Lenders
Mortgage brokers have access to countless lending programs and can be your best bet if you have so-so credit.