Buying a home with bad credit

There are many options available for consumers looking to buy a home with poor credit. The first step that needs to be taken is to call a mortgage broker. Contacting a mortgage broker will let you know how much of a home you qualify for and provide you with a pre-approval. A mortgage broker works with hundreds of different lenders throughout the nation which allows him or her to be able to access thousands of more home loan programs than a traditional bank. What this means to you is a better chance of finding a mortgage lender that will provide you with a loan and a better chance at obtaining a better interest rate.

Buying a home with bad credit is more common than you might think. As people's financial situations turn around, they often begin thinking about buying a home. Their credit scores and histories can take years to catch up to their new financial situation.
Your initial interest rate will be higher than if you had good credit. However, your mortgage professional can help you set up a plan to improve your credit score and refinance to a lower rate and payment in one to two years.

Many people assume that their credit is worse than it is. Before assuming your credit score is too bad to buy a home, contact a mortgage professional. He can pull your credit report and review it with you. Then you will have a good idea what your options are.

You want to look for brokers who specialize in helping those with bad credit or credit challenges. There are programs available now with 100% financing for scores lower than 550. If you're below (sub) 500 in your score then you will probably need an equity based lender where they loan on the equity in the property and are not score driven.

When your credit is poor and you believe it will be an obstacle in purchasing a home, you should take a few immediate steps to help clean up your credit report. Begin by paying your bills on time, every time. This may sound like an obvious answer, but paying the minimum payment every month is better than paying it late or not at all. Owning a home is a major responsibility, so even if you haven't paid close attention to your finances before, make a serious commitment to do it now. Secondly, review your credit report and make a list of the issues that need to be dealt with. Your mortgage broker can help you to do this, outlining a clear plan to improve your credit. You have the option of hiring a credit repair company and you can also ask your broker for a reference for a reputable firm. Your mortgage broker may already have a relationship with a trusted company.

Many homebuyers can utilize FHA financing if they have some bad credit. For an FHA loan, you will need to have had your credit on time for the last 12 months, write a letter of explanation, and pay off any outstanding collections.

» DISCLAIMER: The information contained in this article on 'Buying a home with bad credit' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.